ECB may soon lift banks' dividend restrictions
The European Central Bank’s (ECB) decision asking banks not to pay out dividends or conduct share buy-backs until 30 September 2021 left the sector up in arms. European banking stocks slumped upon this decision, which was meant to ensure that banks had sufficient reserves to handle the losses caused by the Covid-19 pandemic and continue lending operations.
This ban may soon come to an end, hinted Andrea Enria, chair of the European Central Bank’s (ECB) supervisory board. “We will exit from these dividend recommendations, hopefully soon. We have tabled a decision at our Board on July 23, and we will communicate shortly after that,” said Enria, speaking at AFME/ OMFIF annual European financial integration conference. Tempering the expectations, Enria stressed that banks should remain prudent, since uncertainty still exists, and credit risk has not materialised for the banks.
Though the decision on dividend restrictions was not well-received by the banking sector, it was extremely important, explained Enria. “The recommendation played the role it was meant to. Along with release of capital buffers and extraordinary monetary policy interventions, it created the right environment to avoid a knee-jerk reaction to the crisis and enabled banks to continue supporting households and corporations,” he explained.
Banks need to take more decisive self-help measures and systemic actions, said Enria. The senior ECB official said that banks should focus on their business model, concentrating on what is profitable, considering a consolidation strategy as a tool to restore profitability and invest more in digital solutions.