The European central bank (ECB) called on the European banks on Tuesday not to pay dividends until September next year. Banks looking to distribute dividends are advised to limit this amount to a maximum of 15 percent of profit.
At the end of March, the ECB asked banks not to pay dividends during the corona crisis. Financial institutions are better placed to hold that money to absorb blows when businesses and consumers are unable to repay loans, for example. Buying own shares was also discouraged.
Banks are also now being asked to be extra cautious about granting employee bonuses for performance in 2020. Financial institutions looking to distribute dividends or buy back stocks need to be profitable and have adequate buffers. In addition, banks should refrain from paying interim dividends on next year’s profits.
Banks have already announced that they have the obstruction in their stomach. Among other things, this ensures that investors get out. Several regulators are concerned about banks’ buffers when they start paying dividends again. Especially since many banks have too few reserves to bear losses. When governments unexpectedly have to go through a bailout, the bill can land with the taxpayer.