The European Central Bank (ECB) has lifted the ban on the dividend distribution of banks that it established in the wake of the pandemic, although it limits them to 15% of the accumulated profit in 2019 and 2020, at least until September 2021. In addition, you must ¡N refrain from distributing dividends on account of your 2021 profits.
In a note published by the entity after the meeting of the Supervisory Board, the ECB insists on asking the banks in the euro zone to act with “extreme caution” in relation to dividends and share buybacks. “To this end, the ECB has asked all entities to consider refraining from distributing cash dividends and repurchasing shares or to limit such distributions until September 30, 2021,” the note states.
Given the persistent uncertainty about the economic impact of the coronavirus pandemic, the ECB expects dividends and share buybacks to remain below 15% of cumulative profit for the 2019 and 2020 fiscal years and not exceed 20 basis points of the Common Equity Tier 1 Capital Ratio (CET1), if this amount is less. “Entities intending to pay dividends or buy back shares must be profitable and have strong capital trajectories. They are expected to contact their joint supervisory team to determine whether the expected level of distribution is prudent.
The previous recommendation of March 27, 2020 (and the subsequent extension of July 28) on the temporary suspension of all cash dividends and share buybacks reflected the “exceptional and difficult circumstances” that the economy has faced Europe in 2020. Now, in revising its recommendation, the ECB acknowledges the decrease in uncertainty in macroeconomic projections. “Despite the current challenges, the revised projections are close to the central scenario used in the vulnerability analysis carried out by the ECB in the first half of the year, which confirmed the resilience of the European banking sector” , explains the body chaired by Christine Lagarde.
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