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New recommendation from the Eurotower Supervisory Board to credit institutions
New recommendation to credit institutions from the Eurotower Supervisory Board
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“Extreme caution”. The ECB recommends it to banks regarding the distribution of dividends and the repurchase of own shares, which should “be suspended or limited until 30 September 2021.”
This was announced by Eurotower, emphasizing asking institutions “not to distribute cash dividends and not to make buybacks or to limit similar distributions.” In detail, “given the persistent uncertainty about the economic impact of the coronavirus pandemic, the ECB expects that dividends and buybacks” will not exceed the lowest level between “15% of accumulated earnings 2019-20 and 20 basis points in Cet1 terms “.
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Banks wishing to make these distributions to shareholders must in any event be “profitable and have strong capital trajectories” and should contact the joint supervisory team to assess whether the expected level of distribution is prudent. “Thereafter, the The ECB specified that banks should refrain from paying advances on the dividend of 2021 earnings.
Therefore, the previous recommendation that asked European banks not to pay dividends until January 1, 2021, to strengthen equity in order to absorb losses and ensure the flow of credit to households and companies, has been replaced and extended . Of course, 2021 should be better than 2020: it will go from the worst recession of this century to an uncertain and risky economic recovery. Post-Covid 19 recovery will be slower than expected, due to the second wave of infections that are more violent than expected and due to the introduction of new locks that slow down recovery. Therefore, next year will be more difficult precisely for banks: defaults and public guarantees will slowly exit the stage, causing new bad loans (the SSM estimates that the level of non-performing loans post-Covid in the worst case scenario up to 1,400 million).
The management of the amount of non-performing loans will require “new public budgetary initiatives to deal with non-performing loans”, as emerged yesterday in the minutes of the last meeting of the Governing Council of the ECB: bad banks with homogeneous European criteria should allow the rapid settlement of doubtful assets, thanks to public interventions to mitigate the negative impact on bank accounts.
