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The majority of analysts believe Lloyds’ narrow passing of the Bank of England’s (BoE) debut annual industry “stress test” on Tuesday has strengthened its case for paying a dividend for the first time since its 20.5 billion pounds government rescue during the financial crisis of 2007 to 2009.
Some analysts had expected Lloyds to be vulnerable in the test, because of its heavy exposure to British home loans.
However, it was found to hold core capital of 5 percent of risk-weighted assets under the adverse test scenarios, ahead of the 4.5 percent pass mark.
“While the headline figure of 5 percent might concern some, we don’t think it takes away from the dividend story,” said Exane analyst Tom Rayner.
The BoE tested how resilient Britain’s biggest eight lenders would be in the face of a slump in house prices and higher interest rates.
Lloyds has been in talks with the regulator for several months seeking permission to make a modest payout for the 2014 financial year.
It hopes to be able to make an announcement alongside its full-year results in February.
Resuming dividends could make it easier for the government to sell its remaining 25 percent shareholding in the bank.
Analysts on average forecast Lloyds will pay a 2014 dividend of 1.24 pence per share, according to Thomson Reuters data.
“We see the stress test results as clearing the last major hurdle for the Lloyds dividend to be switched back on,” said analysts at Morgan Stanley.
However, a minority of analysts remain sceptical about Lloyds’ chances of paying a dividend, saying the regulator will be deterred by how close Lloyds came to failing the test.
“We believe that expectations that Lloyds will commence a dividend this year are misplaced,” said Jefferies’ Joseph Dickerson.
Dickerson’s opinion was backed up by a senior banker who told Reuters he believed Lloyds was “further away from paying a dividend” as a result of the stress test result.
Lloyds’ executives had anticipated a close passing of the BoE’s test because it was focussed on UK home loans. The bank has the biggest residential mortgage book of any UK lender.