Frankfurt / Main (dpa) - Loans instead of dividends: According to the supervisors' wishes, banks in the euro area should not distribute profits this year because of the Corona crisis.
The banks should also refrain from buying back shares until January 1, 2021 if possible, the bank supervisors of the European Central Bank (ECB) warned. The aim of the dividend freeze is to strengthen the ability of financial institutions to cope with possible losses as a result of the pandemic and to have sufficient funds for lending to private individuals and companies.
"The build-up of strong capital and liquidity buffers since the last financial crisis has enabled banks in this crisis to continue to lend to households and businesses, thereby helping to stabilize the real economy," said ECB Banking Supervisor Andrea Enria, the extension of the dividend freeze by three months. "It is all the more important to encourage banks to use their capital and liquidity buffers now in order to continue to concentrate on this overarching task: lending."
So far, the ECB had appealed to banks not to pay dividends to their shareholders at least until October 1 of this year. As a result, many banks canceled planned profit distributions for the 2019 financial year or at least reduced them.
In a video conference, Enria emphasized: "We expect banks to follow our recommendation." If institutions do not do this, the ECB will not hesitate to make binding requirements for individual houses. In December, the ECB's banking supervision will review the temporary dividend freeze based on the economic data that will then be available - with sufficient lead-in for the period in which profit distributions to shareholders are due for the 2020 financial year. "We very much hope that we can return to normal as soon as possible," said Enria.
The Federal Association of German Banks (BdB) was critical of the extension of the dividend freeze. "In our view, a general ban on distributions for all banks does not make sense," commented BdB general manager Christian Ossig. “The ECB has all the information it needs to ask individual banks not to pay dividends. With a flat-rate extension and the possible expansion into 2021, institutional investors in particular are unnecessarily unsettled. » This is a competitive disadvantage compared to competition from outside the euro area.
In view of the economic upheavals caused by the Corona crisis, the German financial regulator Bafin has repeatedly asked financial institutions to handle their capital resources "very carefully". As early as March, the Bonn authorities warned that banks should refrain from buying back shares and carefully consider distributions of dividends, profits and bonuses.
According to an analysis by the ECB's banking supervisory authorities, banks in the euro area are adequately equipped to deal with setbacks in the corona crisis. Enria warned that if the economic environment deteriorated significantly, the capital buffers would melt together "significantly". In such a case, the authorities should be ready to take further measures "to prevent simultaneous deleveraging by banks that could deepen the recession". For example, government guarantees to secure loans would be conceivable.
Using two scenarios, the supervisors analyzed how the capital buffers of 86 institutions that the ECB directly oversees would react. In the first calculation, which the ECB believes is more likely, the central bank expects economic output in the currency area to decline by 8.7 percent this year. In the second case, a deeper fall of 12.6 percent is assumed. In both scenarios, the ECB expects the economy to return to growth in 2021 - albeit at different speeds.
Depending on the severity of the economic crisis, the core capital ratio (CET1) of banks would drop from an initial value of 14.5 percent by 1.9 or 5.7 percentage points. In the latter case, several institutions would have to take measures to meet the minimum capital requirements of the supervisors.
The ECB has been directly supervising the largest banks and banking groups in the euro area since November 2014, currently there are 115 institutions in the common currency area that represent almost 82 percent of the market in the currency area of the 19 countries.
© dpa-infocom, dpa: 200728-99-953407 / 2