The European Central Bank told euro zone banks on Friday to skip dividend payments and share buybacks until October at the earliest and use their profits to support the economy as it is hit by the coronavirus pandemic.
With large parts of the euro zone in lockdown and the economy braced for an unprecedented contraction, most banks have acknowledged they would struggle to pay a dividend for this year.
But many large lenders, including Spain’s Santander (SAN.MC) and Italian duo Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI) were still clinging to plans for paying out part of last year’s profits.
“To boost banks’ capacity to absorb losses and support lending…they should not pay dividends for the financial years 2019 and 2020 until at least 1 October 2020,” the ECB said.
“Banks should also refrain from share buy-backs aimed at remunerating shareholders.”
The ECB estimates the move would save banks 30 billion euro worth of capital.
Germany’s banking association begrudgingly accepted the decision as long as it remained a one-off.
“Otherwise it would be difficult for banks to find investors in the long term,” said the head of the trade body, Christian Ossig.
The European Banking Federation said earlier on Friday banks should halt 2020 dividend payments but left any decision on payouts from last year’s profits to bankers’ own judgement.
In Spain, Santander has said it would hold off paying its interim dividend for 2020, due in November, and Caixabank (CABK.MC) cut its own payout.
Germany’s Commerzbank (CBKG.DE) and Aareal Bank (ARLG.DE) had also said they were reconsidering their dividends.
The French government on Friday called on companies in which the state has a stake not to pay dividends as they deal with the coronavirus crisis.
The ECB’s decision was something of a quid pro quo after it helped banks cope with the pandemic by letting them eat into their capital and cash buffers, as well as offering regular rounds of cheap credit in dollars and euros.
“I am convinced…that this should not be a one-way road,” the ECB’s top bank supervisor Andrea Enria said.
“As everything around us is being put on hold… a contribution is also required from banks and their shareholders.”