The ECB has removed the limit on eurozone bank dividends and purchased shares

The head of supervision at the European Central Bank has said it will lift the dividend cap and restore purchases in eurozone banks, a vote of confidence in the sector’s resistance to the coronavirus pandemic.

Andrea Enria they told MEPs On Thursday, the ECB said it was more clear about the financial strength of eurozone banks now, which meant they were able to distribute capital to investors to alleviate other pandemic-related austerity restrictions.

“In the absence of adverse material development, we plan to abandon our recommendation by the end of the third quarter of 2021 and return to reviewing dividend and share purchase options as part of our normal oversight process based on careful forward assessment. Individual capital planning for each bank,” Enria said.

The decision highlights how regulators are increasingly concerned about pandemics and measures to control it that could lead to a banking crisis that could lead to floods of bankruptcy and toxic loans.

Shares of eurozone banks have rebounded sharply over the past six months – the Euro Stoxx banking index has recovered from the 50 per cent decline it suffered after the Covid-19 crisis. After the ECB reported on Thursday, shares in the eurozone’s largest banks, including ING, UniCredit and Banco Santander, were up 2% higher.

The change in the ECB came a week after the US Federal Reserve eased the restrictions he established them during the pandemic on the dividends and purchases of American banks.

Enria said the banks are “so far resilient” and added that “strong capital positions and profitability have recovered in the second half of 2020 and the first quarter of 2021.” But he said there is still “uncertainty about the evolution of the pandemic” and that the unbalanced recovery between sectors and countries could still weigh on banks’ balance sheets.

The European Banking Authority will announce the results of the EU’s latest stress test on 30 July, when the ECB will release it parallel exercise at 38 of the most significant banks in the eurozone.

Enria said supervisors hoped that “distribution plans will remain prudent and with the potential to generate internal capital for banks and the potential impact of deteriorating exposure quality, even in adverse scenarios.”

President of the ECB Christine Lagard said The European Systemic Risk Board, which it heads, is likely to recommend removing the limit on banks ’capital distributions. “Better economic outlook behind the rapid progress in vaccination campaigns has reduced the likelihood of serious scenarios,” he said.

When the pandemic hit Europe last year, the ECB ordered eurozone banks to stop all dividends and share repurchases in order to conserve capital worth € 30 billion.

Since the beginning of this year, eurozone banks have been given permission restart capital distributions the limit of up to 15 per cent of the profits of the last two years and greater than 0.2 per cent of the maximum ratio of the maximum ordinary capital.

The Bank of England has placed a similar cap on British dividends and redemptions, and the Prudential Regulation Authority has said lenders will allow 2021 dividends to be paid “appropriately prudently” but pending another update in July.

Additional report by Stephen Morris in London