The Supervisory Board of the European Central Bank yesterday agreed to lift the veto on banks’ dividends. However, it is urging them not to distribute more than 15% of accumulated profits in 2019-2020, nor exceed 0.20 points of the CET1 capital ratio. From both options they have to choose the lesser one. The measure will be in force until end-September 2021, when it will be reviewed to see if it can be lifted in light of the economic situation.
ECB dividend veto
The ECB is focusing on the proactive management of NPLs, linking the dividend policy to the impact of Covid19 on credit quality. Estimates suggest an increase in delinquency rates of up to €1.4 Tr in an adverse macro scenario, equivalent to 5.7% of the capital ratio. At a round table organized last week by the Bundesbank, Banco Santander chairman Ana Patricia Botín argued that the dividend veto is one reason why the banking sector is not sufficiently resilient “in terms of its ability to attract capital.”