Resilience bank: the ECB confirms the veto of dividends

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Joseph Paul JofreSEGUIRBerlín Updated: Save Send news by mail electrónicoTu name *

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Facing a pandemic with an impact still uncertain and learning the lesson of earlier crises, the Single Supervisory Mechanism the European Central Bank (ECB) has confirmed this Tuesday, the veto of the bank to distribute dividends until January, 2021 . The extension of the measure issued in march (until October) and that ABC announced that it had communicated unofficially to the entire banking, is extended by three months and is qualified by the ECB as a “temporary and exceptional” and aims to “preserve the ability of banks to absorb losses and sustain the economy in this environment is particularly uncertain”.

The ECB has further recommended to the banks to be “extremely moderate” in the payment of bonuses, “by reducing for example the sum of the variable part of the salaries”. According to chief supervisor of the ECB Andrea Enria, “the creation of reserves and solid capital since the last financial crisis has enabled banks to continue lending to companies and households, and what is more important is encourage banks to use their capital to focus on the main task to provide”. The ECB will reassess in the last quarter of the year the need to extend or not to use these recommendations, taking into account the economic environment, the stability of the financial system and the reliability of the planning of the capital.

The Bank of Spain, for its part, following the indication of the ECB, which advised that until the first of January, “entities less significant not to pay dividends or make commitments irrevocable pay” and “do not make purchases of shares or to adopt other measures in order to be paid in cash to the shareholders”. Also recommends that the entities under their direct supervision who are not able to comply with the above, by legal impediments that explain this situation to the computer of the Bank of Spain that bears his supervision.

vulnerability Analysis

the recommendation of The ECB is backed up by the analysis of vulnerability also published this Tuesday, and it indicates that the level of capital in the system could decrease significantly if it materializes a “scenario severe”. This last one foresees a decline in real GDP 12.6% in 2020, and a GDP growth of 3.3% and 3.8% in 2021 and 2022, respectively. But in general, according to the ECB, the euro zone banks have the capacity to resist the stress caused by the pandemic, and the deficit would remain content.

In a general way, the examination of the ECB has given as result that “the european banking sector can resist” the crisis, but a deterioration of the situation would lead to a “significant decrease of the capital of the banks” that would require “additional measures” on the part of the States. The european banking shows resilient to the stress caused by the pandemic coronavirus, insists the ECB in its analysis, adding that “the credit exposures that have deteriorated and the losses due to market risk are the main drivers of the depletion of capital.”