Sunday, September 26

The ECB lifts the veto on the distribution of bank dividends

Headquarters of the European Central Bank in Frankfurt.

Headquarters of the European Central Bank in Frankfurt.

The European Central Bank (ECB) has decided this Friday on ltotal lifting of the restrictions on the distribution of dividends of the banking entities that it imposed more than a year ago as a measure to conserve the maximum possible capital of the bank to face the consequences of the crisis of the covid-19. The bank’s supervisory board met today and made this decision on the remuneration to shareholders of banks, which was one of the most anticipated news by the sector and which will be effective from the end of September.

“The latest macroeconomic projections confirm the economic rebound and indicate a reduced uncertainty, which is improving confidence in banks’ capital trajectories, “the ECB argued in a statement. The agency assures that the credit risk of banks during the pandemic And, as a consequence of that, it is “appropriate” to reinstate the practices that had been taking place before the pandemic of discussing the remuneration plans for the shareholder of individualized way. The measure will take effect from October.

In any case, supervision will be maintained and when assessing the banks’ dividend distribution plans, the ECB supervisors will take into account the results of the 2021 estres test, whose publication will take place next week. They will also value banks’ credit risk practices and how they could affect credibility of your capital trajectory.

In December 2020, after the total restriction in March last year, the monetary authority already partially lifted the restrictions, limiting distributions to 15% of profits. A few weeks earlier, El Periódico de Catalunya, the newspaper that belongs to this group, Prensa Ibérica, had already announced this possibility.

As usual, this Friday’s decision was communicated at the close of the markets. In any case, the decision is subject to the supervisory authorities appreciating that economic and financial sector conditions have not deteriorated. The ECB claims the banks prudence when deciding your dividend distribution policy, even if there are no restrictions. That is a message that the deputy governor of the Bank of Spain conveyed, Margarita Delgado, a few days ago, according to industry sources. Even if the explicit restriction disappears, the ECB will control that banks do not apply remunerations that are considered excessive. “We have other tools if banks do not accept the recommendation of the supervisor,” added the deputy governor in an interview with Bloomberg.

Banks have always criticized this veto on the distribution of dividends, especially when compared to banks in the United States, which are not subject to this type of restriction. During the presentation of the half-yearly results, Bankinter’s CEO, María Dolores Dancausa, stressed that she hoped that the ECB would allow her to distribute a 50% cash dividend pay-out, as this financial entity has usually done. In fact, since this restriction came into force, banks have been heavily penalized in the stock market.

A recent study prepared by the ECB itself concluded that the recommendation that euro zone entities avoid distributing dividends among their shareholders in response to the uncertainty of the crisis caused by the pandemic had an average adverse impact of 7% on the valuation of bank stocks.

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