There European Central Bank plans to lift restrictions on dividend payments and the buyback of own shares (buyback) for Eurozone credit institutions before the end of the year. Economic prospects in Europe have improved and banks have maintained strong capital levels, he pointed out Andrea Enria, number of the ECB Banking Supervision in a hearing in the European Parliament.
“In the absence of materially negative developments, we plan to repeal our recommendation at the end of the third quarter of 2021 and go back to reviewing dividends and share buybacks as part of our normal supervisory process, “explained Enria.
The number one of the ECB Supervision, however, also highlighted that concerns remain about the quality of the balance sheet items of the banks. Some lenders have started reducing loan loss provisions in the first quarter, though it’s too early to tell if customers are out of harm’s way.
The government support has helped many companies stay afloat and, until it is completely revoked, it is difficult to establish the real impact the pandemic has had on different parts of the economy.
For Enria then some banks are assuming greater risks by lending additional sums of money to already indebted customers. “The very low credit quality makes the market vulnerable to further shocks, including a sudden asset repricing,” he warned.