The European Central Bank (ECB) is devising formulas to ensure that banks do not go crazy on dividends later this year, once the cap on shareholder remuneration is lifted, something that is “more than likely. “That happens in October .
Margarita Delgado, a member of the ECB’s supervisory council, assured in an interview on Monday that the central bank will ask lenders to be “cautious.” These statements made to the Bloomberg agency reduce the possibility of a drastic increase in payments to shareholders as the European economy leaves the recession and returns to growth.
The ECB will pressure banks that propose excessive rewards to shareholders “to return to a tighter distribution policy,” said Delgado, who is also deputy governor of the Bank of Spain . “We have other tools if the banks do not accept the recommendation of the supervisor.”
The ECB plan
The ECB seeks a plan that, in exceptional circumstances and after a “constructive” dialogue, could include subjecting banks to higher capital requirements or qualitative measures. In addition to an assessment of a bank’s financial strength, the ECB will compare payment plans among those of a similar size or business model.
European entities are eager to give back to their shareholders, who are suffering the limits imposed by the ECB during the pandemic. Other banks have already lifted their prohibitions or controls, such as the Bank of England, which removed the restrictions imposed at the height of the pandemic to ensure that major lenders such as HSBC, Barclays or Standard Chartered could cope with losses. potentials caused by covid.
The ECB will reveal its final decision at the end of this month, although everything indicates that the veto will be lifted de facto in October, as several members of the central bank have hinted in recent statements.
Delgado’s statements show that regulators are preparing for a potential increase in business insolvencies as payment defaults on certain loans end and variants of Covid-19 increase uncertainty.
“We will analyze the situation of each of the banks, that is what it means to return to normality,” says Delgado. “Let’s take Bank X, which is solvent enough, prudent enough, with significant management buffers and very strong recurring profitability, that bank will probably be able to pay not only for the results of 2021, but also of 2020.”
Ten of the largest banks in the euro area have more than € 22.2 billion ($ 26.3 billion) set aside to reward shareholders , according to Bloomberg calculations . BNP Paribas, Banco Bilbao Vizcaya Argentaria (BBVA), ING, Intesa Sanpaolo and Nordea Bank have the largest liquidity reserves to remunerate their shareholders.