The president of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, has assured this Tuesday that next July 23 a decision will be made on whether or not to maintain the limitation on the distribution of dividends from listed banks. “We will progressively eliminate the recommendations regarding the distribution of dividends. I know there is great expectation. We will present a decision on July 23 and then we will communicate it to the market ”, Enria pointed out.
Then it has declared to be “neutral” on whether or not it is convenient to give the green light to dividends. However, he has admitted that the economic situation is clearly improving: “There are strong expectations that provisions will fall and that profits will grow. I have no objection to admitting it, although there is a lot of uncertainty, prudence should still be the norm for a few months ”, he explained at the annual conference on EU financial integration, organized by the Association of Financial Markets in Europe (AFME). The ECB made this decision to protect the capital level of the banks so that they could give more loans.
Banking sources have confirmed that in the last meetings held with supervisors, they have admitted that the good economic prospects and, above all, the lower default expected once the pandemic has advanced, suggests that there will be authorization to distribute dividends now. the purchase of own shares. So far, all banks have stated in the results presentations that the provisions made in 2020 will be sufficient to cover the effects of the pandemic and that in 2021 they will make normal allocations of the calendar.
Seek more profitability
In addition, entities are responding to requests for unrestricted creditworthy credit, so the ECB cannot argue that they need to store more capital to meet the demand for loans from companies and families.
Enria has complained about the lack of profitability in the sector. He has said he is “frustrated” because the banks do not take into account the recommendations he makes with the aim of increasing their profitability. “For too long, banks have reacted to low stock valuations and low profitability by blaming excessively harsh supervision and the low interest rate environment, so basically their strategy has been to postpone or water down rules or wait for it to change. the interest rate environment ”, has assured the ECB’s top banking supervisor.
In this sense, Enria has stated that the agency “has been very clear” for several years that banks have to focus on their business areas that generate more profits and abandon those that do not. Likewise, they also have to adopt cost efficiency measures and invest even more in digitization processes. Since all these decisions are strategic business options, Enria has recognized that for supervisors “it is very difficult” to intrude on these processes.
“We are a bit frustrated because many of the recommendations we make to banks in this area are not followed by actions,” he assured, which is why the supervisory branch of the ECB is thinking of making its recommendations “more effective.”