The European Central Bank (ECB) announced on Friday the lifting, from October, of its recommendation to banks to limit the payment of dividends due to the pandemic, however, urging them to remain cautious in this area.
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The supervisor of the large banks in the euro area, housed within the ECB, has decided “
not to extend beyond September 2021
” this recommendation in force since December 2020, according to a press release.
When deciding their dividends, however, they should "
not underestimate the credit risk
" which could by itself reduce their own funds, adds the institute.
"
A decrease in uncertainty
"
By lifting its recommendation, the ECB recognizes that the latest macroeconomic projections "
confirm the rebound
" in activity and indicate "
a decrease in uncertainty
", all of which augurs well for an imminent strengthening of banks' own funds.
This posture contrasts with that of the President of the ECB, Christine Lagarde, who was worried Thursday about "
the growing uncertainty
" linked to the rise in the curves of Covid-19 infections, which confirmed the maintenance of an accommodating monetary policy. Since December, banks wishing to pay dividends were invited to cap their payment at 15% of cumulative profits for fiscal years 2019 and 2020, or 20 basis points of the hard capital ratio known as "
CET1
",
whichever is
lower. retained.
Previously, the ECB had imposed a period of complete dividend freeze at the end of March 2020, at the height of the first wave of the pandemic.
From October, the ECB will resume a dialogue with the 114 banks under its supervision, such as the giants Deutsche Bank, BNP Paribas and Unicredit, to discuss on a case-by-case basis the "
assessment of the capital and distribution plans of dividends
”and this under terms“
in effect before the pandemic
”, according to the press release.
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The supervisor "
also invites banks to adopt a cautious and forward-looking approach in setting their remuneration policies
" for staff. National competent authorities, such as the Prudential Control and Resolution Authority (ACPR) in France, are also expected to “
follow the same approach for the banks that they supervise directly
”.
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