By Kristy Dorsey

The chairman of the Royal Bank of Scotland has warned that the sector is no longer investable after regulators ordered lenders to suspend dividend payments to bolster their finances against what is expected to be a steep economic downturn.

Sir Howard Davies told the City & Financial webinar that banks can’t defer dividends indefinitely, and called for curbs to be lifted by the autumn. In March, the Bank of England ordered lenders to ditch dividend payments and share buybacks until the end of 2020 in response to the economic crisis caused by Covid-19.

“It’s probably fair to say the banking sector is not investable because when people try to do the models about what banks are worth, they can’t plug in any numbers for cash out,” Mr Davies said.

READ MORE: Royal Bank chief warns Covid crisis will lead to a surge in bad debts

UK banks have lent more than £40 billion of state-backed funds to struggling businesses during the crisis, but are bracing for an expected wave of defaults in the coming months.

Royal Bank of Scotland, which remains 62% owned by the Government after the bailouts from the 2008 financial crisis, booked net impairment losses of £802 million in the first quarter of this year. That figure included a charge of £628m to reflect the “more uncertain outlook” going forward.

As a result, first-quarter profits attributable to ordinary shareholders fell to £288m, down from £707m the previous year.

READ MORE: Royal Bank profits hammered by £630m virus charge

“We can see clouds gathering on the horizon, but it hasn’t yet started to pour down with rain, but I think we know that it’s going to, and that’s going to be a very difficult period for us,” Mr Davies said yesterday.

Also speaking at the webinar, Starling chief executive Anne Boden said banks will need Government support in handling unpaid state-backed business loans in the coming months.

Shares in the Royal Bank of Scotland have fallen by about half this year, as have those of rivals such as Lloyds. The FTSE 100 is down 18% in the year to date.