LONDON (Reuters) - Banks should halt 2020 dividend payments to preserve capital and keep lending to businesses and households until the impact of the coronavirus epidemic is clearer, the European Banking Federation (EBF) said.
The EBF said the European banking sector remained “fully committed” to helping businesses and households cope with the fallout from the health crisis and it would prioritize solvency in order to be able to fund the economy.
Most banks acknowledge paying 2020 dividends may be unlikely. However many are wary of pulling payouts for 2019 they had already told investors would be coming, setting up a potential battle if governments try to push them to.
“It is the strong view of the European Banking Federation that any decisions by a listed bank to withhold its 2019 dividends at this stage needs to take into account the perception of investors about the solvency of the European banking sector and the expectations of shareholders,” the EBF said in a letter sent to the European Central Bank’s top banking regulator Andrea Enria late on Thursday.
“Banks should be prudent when deciding about dividends and have a forward-looking view on risks to avoid a situation where capital needs would arise,” an ECB spokeswoman said on Friday.
The EBF, a trade body which represents banks across Europe, said that where 2019 dividend distributions and share buybacks have not yet been voted by shareholders, some banks could decide to put part or all the amount into reserves until the impact of coronavirus is clearer.
“For 2020 the EBF believes that listed banks should not accrue dividends or undertake share buybacks so as to maintain maximum capital preservation and bank boards will be deciding on dividend policy and any distribution amounts at year-end,” the EBF said.
Germany’s Commerzbank (CBKG.DE) said it was considering its 2019 dividend. “We are looking at it and will decide responsibly,” it said. Germany’s Aareal Bank (ARLG.DE) is also considering its dividend.
In Spain, Caixabank (CABK.MC) is cutting its dividend, while Santander (SAN.MC) has said it would hold off paying its interim dividend, due in November.
The ECB is allowing banks to tap some of their capital to ensure they keep lending during the epidemic and has said they should not use it to increase dividends or bonuses.
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.
