The Recommendation of the European Central Bank (ECB) of 27 July 2020 on dividend distributions during the COVID-19 pandemic (ECB/2020/35) (the “ECB Recommendation”), recommends that credit institutions should not pay dividends for the financial years 2019 and 2020 until at least 1 January 2021 and should refrain from share buy-backs aimed at remunerating shareholders.
National competent authorities, such as the Central Bank, are expected to apply this recommendation to entities under their supervision, as deemed appropriate. The ECB Recommendation notes that it is crucial that credit institutions continue to fulfil their role of funding households, small and medium-sized businesses and corporations amid the COVID-19-related economic shock. Any decision made by the Central Bank in relation to a dividend payment application will have regard to this important objective.
The Central Bank also expects that credit institutions adopt a prudent, forward-looking stance when deciding on their remuneration policies, in line with communications from the ECB to significant institutions, the EBA "Statement on dividends distribution, share buybacks and variable remuneration” of 31 March 2020 and the Recommendation of the European Systemic Risk Board (ESRB) of 27 May 2020 on restriction of distributions during the COVID-19 pandemic (ESRB/2020/7).
In particular, credit institutions should adopt a prudent approach with regard to variable remuneration payments until 1 January 2021, especially to identified staff (so-called “material risk takers”), insofar as these payments may result in a deterioration in the amount or quality of the institution’s total capital.
The Central Bank acknowledges the recent Recommendations of the ECB (ECB/2020/62) and ESRB (ESRB/2020/15), and the EBA Statement, relating to dividends and other distributions. The Central Bank is aligned with their views that institutions should apply a conservative approach to dividends and other distributions in light of the continued uncertainty surrounding the COVID-19 pandemic. The Central Bank will be communicating with credit institutions further on this matter in the coming weeks. In the interim we expect credit institutions to continue to follow our existing guidance beyond 01 January 2021.