From October, banks will once again have their “hands free” on the distribution of dividends, after the months of “stop” linked to the crisis induced by the pandemic. This was established by the European Central Bank (ECB), which in a note explained «not to extend its recommendation to all banks to limit dividends beyond September 2021. The supervisory authorities, on the other hand, will resume evaluating the capital and dividend distribution plans of each bank as part of the regular prudential process ». This means that the supervisory authority on banks in the euro area, led by Andrea Enria, will assess the situation on a case-by-case basis: if a credit institution does not have the numbers to issue coupons, the ECB will be able to block the dividend. The “stop” linked to the pandemic started in March 2020, was reiterated in July last year and then reduced to a recommendation to contain coupons as well as the buyback of own shares until 30 September this year. And now comes the news of the “free all” from October.
«A similar treatment – added the ECB – was requested for the repurchase of own shares. The latest macroeconomic projections confirm the recovery of the economy and indicate less uncertainty, a picture that improves the reliability of the capital trajectory of banks. Supervisors reviewed banks’ credit risk management practices during the pandemic. Therefore, it is appropriate to restore the previous prudential practice of discussing the evolution of the capital profile and the plans for the distribution of dividends or repurchase of treasury shares with each bank in the context of the usual supervisory cycle “.
After that, the ECB nevertheless urged caution: «However, banks should continue to adopt prudence in their decisions on dividends and on the repurchase of own shares, carefully considering the sustainability of their business model. Furthermore, they should not underestimate the risk that additional losses may subsequently affect the evolution of the capital profile, when the support measures come to maturity. National competent authorities are expected to follow the same approach with banks under their direct supervision. ‘