(Bloomberg) — Canada’s six largest banks, flush with capital after the pandemic failed to bring an extended wave of loan defaults, could boost their dividends by an average of 13% when regulators allow them to resume payout increases and still have room to buy back almost 2% of their shares.

The banks’ payouts have fallen to the low end of — or even below — the 40% to 50% of profits they typically distribute because the country’s bank regulator prohibited dividend increases and share buybacks in March 2020. The Office of the Superintendent of Financial Institutions is expected to lift those restrictions in the second half, which would result in significant dividend hikes at most Big Six banks, according to an analysis by Bloomberg Intelligence.

“There is an improvement in earnings that’s expected, and if that’s the case, they should be able to return capital, especially if we consider the capital levels that these banks built up,” Paul Gulberg, an analyst for Bloomberg Intelligence, said in an interview.

National Bank of Canada and Bank of Montreal would have the largest dividend increases if they paid out 45% of earnings, based on consensus earnings estimates for fiscal 2022, which begins Nov. 1.

Only Bank of Nova Scotia — the Canadian bank with significant exposure to Latin America, and one analysts expect will post a more muted earnings gain than rivals next year — wouldn’t be projected to have an increase under that model.

It’s extremely unlikely Scotiabank would cut its dividend and would instead allow its payout ratio to drift toward the higher end of its targeted range, Gulberg said. The bank last declared a dividend increase August 2019, when it raised it 3.4%.

Regulators in many regions imposed limits or bans on dividends near the onset of the Covid-19 pandemic, anticipating that the sudden drop in economic activity could lead to cascading loan defaults that would diminish banks’ capital. Canadian lenders, like their U.S. peers, took large provisions for potential losses in the early days of the crisis, but have now returned to higher profit levels.

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The banks aren’t signaling that they’ll approve so-called “catch-up dividends,” where they boost their payouts aggressively in the short term to make up for the increases they weren’t able to provide over the past year, Gulberg said.

Even after boosting their dividends for next year, the banks would still have the financial wherewithal to buy back almost 2% of their shares. The table below assumes that the banks return to a 45% dividend payout ratio and aim to return a total 65% of their profits to shareholders through a combination of dividends and buybacks. That 65% capital return ratio is a typical pre-pandemic level for Canadian banks, Gulberg said.

OSFI has not yet committed to a timeline for removing the restrictions. Peter Routledge, Canada’s new bank superintendent, said in an interview on BNN Bloomberg Television last week that the level of “financial uncertainty” for the banks is diminishing, but that it’s still not prudent to lift the capital-distribution limits.

“Please, I’d ask folks, be patient,” Routledge said.

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