On 15 Dec. 2020, the ECB amended its dividend recommendations for European banks. In a report published today, Nordic Credit Rating (NCR) says that the new guidance will have a significant impact on Nordic banks' dividend distributions in 2021, even if earnings performance would support higher payments.
The key components of the recommendation are that banks with solid capital positions could be allowed to pay dividends in 2021. The maximum dividend payment is the lower of:
- 15% of total 2019 and 2020 net profits; or
- 20bps of the common equity Tier 1 (CET1) ratio.
The recommendations will initially remain in place through 30 Sep. 2021.
NCR has analysed how these restrictions will impact large Nordic banks and discovered that the key constraint on the banks' ability to reward shareholders will be the limit of 20bps of the CET1 ratio, calculated as 20bps of risk exposure amount as of 30 Sep 2020.
"We believe that Nordic banks will see these restrictions as overly conservative," said NCR credit analyst Sean Cotten. "However, we expect Nordic regulators, which often share regulatory authority with the ECB, to adopt these recommendations."
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com