The
European Central Bank
(ECB) has lifted the ban on the distribution of dividends for banks that it established in the wake of the pandemic, although it limits them to 15% of the accumulated profit in 2019 and 2020, at least until September 2021. They must also refrain from distributing dividends on account of their 2021 profits.
In a note published by the entity after the meeting of the Supervisory Board, the ECB insists on asking the banks of the euro zone to act with "extreme caution" in relation to dividends and the buyback of shares.
"To this end, the ECB has asked all entities to consider refraining from distributing cash dividends and repurchasing shares or to limit such distributions until September 30, 2021," the note states.
Given the persistent uncertainty about the economic impact of the coronavirus pandemic, the ECB expects that dividends and share buybacks will remain below 15% of the accumulated profit for the 2019 and 2020 financial years and not exceed 20 basis points of the Common Equity Tier 1 Capital Ratio (CET1), if this amount is lower.
"Entities intending to pay out dividends or buy back shares should be profitable and have strong capital records. They are expected to contact their joint supervisory team to determine whether the expected level of distribution is prudent.
The previous recommendation of March 27, 2020 (and the subsequent extension of July 28) on the temporary suspension of all cash dividends and share buybacks reflected the "exceptional and difficult circumstances" that the economy has faced European Parliament in 2020. Now, in the revision of its recommendation, the ECB recognizes the decrease in uncertainty in the macroeconomic projections.
"Despite the current challenges, the revised projections are close to the central scenario used in the vulnerability analysis carried out by the ECB in the first half of the year, which confirmed the resilience of the European banking sector," explains the body chaired by
Christine Lagarde
.
As recognized by the banking supervisor, the objective of the recommendation is to safeguard the ability of institutions to absorb losses and provide support to the economy.
"It is still necessary to maintain a prudent approach, given that the impact of the pandemic has not been fully manifested in banks' balance sheets in a context in which banks continue to benefit from various public support measures and considering that credit impairments are they produce with time delay ", he points out.
From the end of September 2021,
"if there are no significant adverse circumstances"
, the intention of the ECB is to repeal the recommendation and to re-evaluate the capital and dividend distribution plans of institutions based on the outcome of the financial cycle. normal supervision.
"Institutions must continue to use their capital and liquidity buffers to grant credit and absorb losses. The ECB will not require them to begin to restore their capital buffers before it reaches the maximum level of decline," he recalls.
In a letter to credit institutions, the ECB has also reiterated its expectations that they will be extremely
moderate in relation to variable remuneration
during the same period as that foreseen for dividends and share buybacks (30 September 2021) .
The supervisor will carefully evaluate remuneration policies, paying particular attention to their impact on the ability of entities to maintain a solid capital base.
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