Canadian Banks' and Insurers' Strong Capitalization and Liquidity Levels Lead to OSFI Lifting Capital Management Activity Restrictions

Canada's largest banks and life insurers have maintained relatively strong performance through the peak of the Coronavirus Disease (COVID-19) pandemic. Regulatory capital levels have increased for banks and stayed at healthy levels for insurers. As a result, the Office of the Superintendent of Financial Institutions (OSFI) announced on November 4, 2021, that it is immediately lifting its restrictions on dividend increases and share buybacks. Capital management activity restrictions were implemented at the onset of the pandemic, when OSFI issued a directive on March 13, 2020, to halt dividend increases and suspend share buybacks.

Key highlights include:

-- The removal of dividend restrictions signals OSFI’s confidence that the systemic risk for banks and insurers from the pandemic has subsided.

-- Elevated capital levels, strong liquidity, and sustained earnings throughout the pandemic support the removal of restrictions on capital management activities.

-- Banks and insurers are likely to remain well above regulatory capital thresholds, despite the anticipated dividend payout increases and share buybacks.

“With resilient capital and liquidity, boards and senior management have been given the green light to resume making decisions on how to prudently distribute capital. Our expectation is for an accelerated pace of capital distributions in order to compensate for the past several quarters during which OSFI's directive prevented banks and insurers from taking such actions. DBRS Morningstar is comfortable, all else being equal and given current levels of capital, liquidity and earnings, with aggressive capital returns as long as banks and life insurance companies stay within their capital targets and remain comfortably above all capital and liquidity regulatory thresholds.” Said Carl De Souza, Senior Vice President, North American FIG.