The Supervisory Board of the European Central Bank (ECB) has agreed to lift the veto on dividends from banks, although has urged entities that the 'payout' does not exceed 15% untilat least September 2021.
The ECB division in charge of banking supervision has continued to recommend not making any kind of remuneration to shareholders in order to conserve as much capital as possible. Although those banks that decide to go ahead with it will have to assume the restrictions imposed.
The body, despite the fact that it will allow the payment of dividends, has asked financial institutions to exercise "extreme caution." In fact, recommends that until September 30 "dividends be abstained or limited". The decision was made due to the high "persistent uncertainty about the economic impact of the coronavirus."
"A continued cautious approach is still necessary, as the impact of the pandemic on bank balance sheets has not been fully manifested because banks are benefiting from various public support measures and because credit impairments come with a temporary delay, "the ECB stressed.
Banks that take the step and decide to pay dividends will have to meet a series of requirements, must be profitable and have strong capital trajectories. In addition, it must be on the profit for the year 2019-2020, banks will not be able to make distributions against the results of 2021.
Financial entities should continue to use their capital buffers and liquidity to grant credit and absorb losses. The ECB will not require them to start restoring their capital buffers before it reaches the maximum level of decline.
Looking ahead to September 2021, the ECB intends to repeal the recommendation and re-evaluate banks' capital and distribution plans based on the outcome of the normal supervisory cycle.
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