ECB Lifts Bank Dividend Payment Ban... Limits on Size to Ensure Soundness

"Within 15% of the 2-year cumulative net profit or within 0.2% of common stock capital"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The European Central Bank (ECB) has allowed private banks to resume dividend payments after a nine-month ban imposed following the COVID-19 pandemic. However, it has imposed strict limits on the payment amounts to prevent deterioration in capital soundness.

According to the Wall Street Journal (WSJ) and others on the 15th (local time), the ECB Supervisory Board announced after its meeting that private banks would be permitted to resume dividend payments. In March, the ECB had instructed private banks not to pay dividends and to conserve funds due to concerns over liquidity shortages caused by COVID-19.

While allowing the resumption of dividend payments this time, the ECB set limits on the payment size, requiring dividends to be paid within the lower of 15% of the sum of net profits over two years or 0.2% of common equity tier 1 capital. Additionally, the ECB urged banks to handle employee bonus payments cautiously and not excessively.

The ECB explained that the reason for resuming dividend payments is the relatively reduced uncertainty due to the development and distribution of COVID-19 vaccines, but emphasized that dividend payments should only be made within the range that can withstand the impact of COVID-19 while maintaining profitability. The measures announced this time are expected to apply until September next year, the ECB said.

Earlier last week, the Bank of England (BOE) also allowed banks to resume dividend payments.

This content was produced with the assistance of AI translation services.