However, according to the ECB, payments to shareholders will be waived until autumn 2021.
According to the wishes of the European Central Bank, the banks in the euro zone should refrain from paying dividends to their shareholders until autumn 2021.
The ECB is thus moving a bit away from the general dividend freeze that was in place until the end of the year. However, she continues to urge caution in view of the possible consequences of the corona pandemic for outstanding loans from financial institutions.
Economic shock
In view of the continued government support for the economy and the significant delay in the negative consequences of the crisis for banks' balance sheets, the corona economic shock for the banking sector may still not be fully reflected, the ECB's banking regulator announced on Tuesday evening.
This ongoing uncertainty requires extreme caution with regard to distributions to shareholders. Therefore, credit institutions should avoid dividends and share buybacks if possible until the end of September 2021 or take the corona consequences into account in any distributions.
Any distributions should not exceed 15 percent of the accumulated profits from 2019 and 2020 or 0.2 percentage points of the Common Equity Tier 1 ratio, whichever is lower. Should a bank plan a distribution, it would have to coordinate with the banking regulator, it said.
Payouts stopped
Shortly after the start of the pandemic, the ECB, which has directly supervised the largest banks and banking groups in the euro area since November 2014, asked the financial institutions in the euro area to refrain from paying dividends and buying back shares for the time being. Many banks subsequently canceled or at least reduced their planned profit distributions for the 2019 financial year.
Initially, the call was only valid until October 1, but has since been extended to January 1, 2021. Recently, however, a softening had already become apparent. For example, at the end of November, ECB vice chief Yves Mersch signaled an end to the general dividend freeze. The argument that the dividend ban had to hold the money together no longer seems to have convinced everyone in the supervision.
Proponents of dividends argue that banks with thick capital cushions should keep their shareholders in line. This is the only way for the institutes to remain viable in the long term. Since the situation of the banks has recently improved somewhat after a gloomy first half of the year, especially with regard to provisions against possible loan defaults, many banks have much more capital on board than the supervisors actually require
