European Central Bank Publishes Recommendation on Bank Dividend Distributions During COVID-19

The European Central Bank has published an updated Recommendation on dividend distributions by significant institutions that are directly prudentially supervised by the ECB. The Recommendation states that, until January 1, 2021, no dividends should be paid out for the financial years 2019 and 2020, nor should share buy-backs aimed at remunerating shareholders take place. Banks that consider themselves legally required to pay out dividends should explain their underlying reasons to their joint supervisory team. Banks that plan to pay dividends to a non-Eurozone parent institution, parent financial holding company or parent mixed financial holding company should also discuss their intentions with their joint supervisory team.
 
The ECB's latest Recommendation extends the ECB's previous Recommendation, published in March 2020, which prohibited bank dividend payments and share buybacks until October 1, 2020. The ECB plans to determine the approach to be followed after January 1, 2021 in Q4 2020.
 
The ECB's Recommendation was published alongside two "Dear CEO" letters addressed to the CEOs of the largest Eurozone institutions. The letters deal with bank remuneration policies in the context of the coronavirus pandemic and the ECB's expectations for how banks will manage their loan portfolios in light of the likely increase in distressed debtors in the wake of the pandemic. With respect to remuneration, the ECB expects the large Eurozone banks to "adopt extreme moderation" for variable remuneration payments until January 1, 2021, including material risk takers.

View the ECB's press release on dividends and restoration of buffers.

View the ECB's Recommendation on dividend distributions during COVID-19.

View details of the ECB's March 2020 Recommendation on dividend distributions during COVID-19.

View the ECB's Dear CEO letter on remuneration policies in the context of the coronavirus pandemic.

View the ECB's Dear CEO letter on operational capacity to deal with distressed debtors in the context of the coronavirus pandemic.

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