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Shareholders in Swedish banks should not receive dividends this year, Finansinspektionen, FI, repeated on Tuesday.
But so far, bank credit losses have not been close to what FI expected, and FI’s chief admits that this year’s losses are unlikely to be as large as the authority fears.
Martin Rex
On Tuesday, FI reiterated its earlier call for Swedish banks not to implement dividends this year.
“We expect banks to wait with dividends until at least after the turn of the year,” says Erik Thedéen, FI CEO.
So far none of the top three Swedish banks have confirmed that they are following FI’s call, but the question of potential dividends this fall is still up in the air.
FI’s position is based on concerns that the crown crisis will result in large credit losses in the banking system, which is why the authority wants to make sure banks have enough capital. At the same time, there are formal requirements on how much capital banks must have to cover, for example, large credit losses. These requirements were designed after the financial crisis to equip the banking system to deal with future crises.
But now that the crisis is here, it is obvious that FI does not believe that the capital requirements are sufficient, because the three main Swedish banks have much more capital than the authority formally requires. The total surplus of Common Equity Tier 1 in the three main Swedish banks amounted to almost SEK 90 billion at the end of the first half of the year, which can be compared to the fact that this spring they had plans to distribute a total of 35,000 million SEK.
For banks to meet FI’s requirements, extremely large losses are required, and in its June stability report, FI calculated SEK 145 billion in total credit losses during 2020-2021. Of this amount, the “main part”, ie at least about SEK 75 billion, will arrive in 2020.
It should be noted that the top three Swedish banks reported credit losses of SEK 8.2 billion during the first half of the year, most of which are provisions for feared credit losses in the future.
Average At the same time, the banking analyst estimates that the top three banks together will report just over SEK 25 billion in credit losses during 2020-2021, of which just over SEK 15 billion this year. This is not even a fifth of the SEK 145 billion that FI has calculated.
FI CEO Erik Thedéen notes that these SEK 145 billion should not be seen as a forecast, but rather as “an illustration of a possible course”. It’s too early to say what big credit losses the crown crisis is leading to, but he admits that it now looks unlikely with more than SEK 75 billion in losses in 2020, which FI believed in June.
“If you push me, I can say that it does not seem likely that we will have such high credit losses in 2020. But the important thing is whether there can be such large credit losses on bank balance sheets, and I think it is possible. But many others are also possible. scenarios, “says FI CEO.
Erik Thedéen also considers it important that banks do much more than “meet capital requirements.”
“We want stable banks that have room for poorer development,” he says.
Does this mean that your formal capital requirements no longer apply, but that there are higher informal capital requirements?
“Banks always have a certain cushion for our needs. But what we’re saying now about dividends is exceptional, and we don’t do exceptional things unless it is exceptional development. “
Isn’t it a rejection of the capital requirements developed after the financial crisis, which would ensure that banks had sufficient capital to deal with a crisis?
“I am absolutely sure that when this crisis is over, as you suggest, we will have a new discussion about what these capital requirements regulations are like.”
In the spring, FI lowered the banks’ counter-cyclical buffer requirement, releasing around SEK 45 billion in capital into banks. In the future, such a move may automatically be tied to bank dividends, Erik Thedéen believes.
“One issue that, in any case, I have already begun to discuss is that perhaps it should be an automatic dividend restriction when we as regulators lower the countercyclical cushion. That is not the case today in the legal framework, but that is what I am trying to achieve through these statements. “
What is the risk of the bank that doesn’t answer your call but makes a stock dividend this year?
“That bank will have less recovery capacity and that will make the bank’s board of directors take responsibility for it. I express our points of view, but legally each bank has the right to make its own decisions ”.
There are no penalties for disobedient banks.
“I’m not punishing. Violating this type of recommendation is not a violation of the rules,” says Erik Thedéen.
