Leading European financial regulators are finalizing new recommendations allowing the region’s strongest banks to restart dividend payments within strict limits, ending a nine-month hiatus imposed due to the coronavirus crisis.
The supervisory board of the European Central Bank, which oversees the 117 largest banks in the euro area, plans to announce the conditions under which it I accept some lenders are resuming their dividend payments after its Tuesday meeting.
Three people briefed on the talks said the ECB was preparing to propose stricter limits on renewing dividend payments from banks than those set by the Bank of England, which survey its ban on distributions to shareholders in the sector last week.
The ECB ordered eurozone banks to halt all dividends and share buybacks to retain € 30 billion in capital in March, shortly after the pandemic hit Europe. Since then, the industry has been pushing for stronger banks to be allowed to resume payments early next year.
The question has divided European financial regulators. Some have argued that the banking industry should continue to hold capital before a potential increasing default values this is likely when governments reduce their loan guarantees and other policies to protect the economy from the pandemic.
However, banks entered the pandemic with much higher levels of loss-absorbing capital than in the 2008 financial crisis, and bank executives warned that the blanket dividend ban could backfire. investors by removing investors from the sector and reducing its ability to raise funds. fresh capital.
“I think they see banks as a privileged sector, when it is clearly the opposite if you look at stock prices,” said a bank president. “I think it’s ideological.” The Euro Stoxx index of banks has fallen 22 percent this year, underperforming the market as a whole.
The ECB’s supervisory board is expected to announce that banks can only resume dividend payments if they are left with enough capital to absorb expected losses from the impact of the coronavirus.
The limit on distributions to shareholders is expected to be lower than the ‘guardrails’ unveiled by the BoE last week to limit payments to 25% of a bank’s profits in the previous two years or to 0 , 2% of its risk-weighted assets – depending on the value used. the highest.
“The most likely scenario is to allow certain institutions to pay dividends, but only under certain conditions, which will likely be more restrictive than the Bank of England,” said a person briefed on the ECB’s discussions. Eurozone banks would likely be limited to distributing only 10 to 20 percent of their profits, the person added. The ECB declined to comment.
Citigroup analysts said euro area banks with the highest capital buffers above regulatory minimums included KBC in Belgium and Nordea in Finland.
The ECB’s supervisory board – chaired by Andrea Enria – and the European Systemic Risk Board – chaired by ECB President Christine Lagarde – will issue separate recommendations on bank dividends on Tuesday.
Some members of the ECB’s supervisory board were angered in July when the ESRB, which oversees the financial system of the EU as a whole and not just the euro area, was the first to publish its recommendation to extend the lockdown bank dividends until the end of the year.
On Tuesday, the ECB’s supervisory board will meet first. However, his decision can still be announced second because it will have to be approved by the Governing Council of the ECB under the so-called no-objection procedure. However, officials said the institutions share many members and coordinate closely, so their decisions are unlikely to differ.