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Banks should wait to distribute dividends to better protect themselves against severe economic recessions during the crown crisis, Finance Minister Jan Tore Sanner said in a press release.
Well-capitalized banks are a prerequisite for banks to be able to cover large losses and continue to lend to businesses and households.
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The virus outbreak has caused the strongest setback in the Norwegian and international economy in many decades, and the Finance Minister notes that uncertainty remains high regarding the future development of the pandemic.
Precisely for this reason, it is important that they retain surplus funds now, according to the Ministry of Finance.
What is the customer dividend?
- Customer dividend means that those who are customers of a bank, for example, receive a dividend that is proportional to the customer’s commitment.
- Dividends from clients are taxed in the same way as interest, that is, at 22 percent.
- The size of the customer exchange depends on the earnings the bank receives over the next few years. It is the supervisory councils of the banks that decide the amount of the participation to be paid as dividends.
Source: Smart Money
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There is still a risk that economic development will be weaker than expected, for example in case of new major outbreaks.
Although in recent months we have seen signs of an increase in the Norwegian and international economy, the danger is far from over. Therefore, I assume that Norwegian banks will wait to distribute dividends or buy back shares until the uncertainty is further reduced, says Sanner.
The Finance Minister’s call for Norwegian banks comes about a month and a half after the European Central Bank also asked banks in the 19 euro countries to wait to pay dividends or bonuses before January next year.
Sparebank postpones dividends, but may come later
Sparebank 1 SR-Bank is one of several banks offering dividends to their clients.
Thor Christian Haugland, Executive Vice President of Communications of the Savings Bank, refers to the stock exchange announcement they sent in mid-April, where they postponed the final decision on dividends for 2019.
On this basis, the board will recommend to the general meeting that no dividend be paid at this time, Haugland quotes Dinside.
However, the board will request authorization from the general meeting to decide on the distribution of dividends, at a later date, of up to NOK 5.50 per share, based on the annual accounts adopted by the bank for 2019, it adds.
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SR-Bank’s authorization will apply until the 2021 Annual General Meeting.
The back of interest rate cuts, not just good
Requested dividend cuts in March
As early as March, Sanner issued the first appeal to banks and insurance companies to refrain from paying dividends and bonuses.
He then received criticism from Rødt for not prohibiting them from distributing dividends during the past year, as Finanstilsynet suggested in a letter to the ministry.
This time, it is true that insurance companies are being asked to “base their profit allocation on thorough analyzes of their own creditworthiness,” but they are not covered by Sanner’s request to wait to pay dividends.
