Association welcomes ECB's less restrictive approach, review clause
>> Related: ECB statement on dividends
The following statement by ESBG reacts to the European Central Bank 15 December recommendation on bank dividends.
BRUSSELS, 18 December 2020
ESBG appreciates the broad and open public debate, which took place over the past months, on banks’ dividends distribution, and we were pleased to see that the ECB recommended a less restricting approach earlier this week. This underlines once again that European banks are solid. We also welcome the review clause, which indicates that the path towards “normalisation” can possibly be continued next year.
Moreover, we fully agree with the authorities’ intention to ensure that lending to households and corporates is maintained during these challenging times. Savings and retail banks in Europe have a provable track record of fulfilling this duty in an excellent way during the Covid-19 crisis.
Nevertheless, we would like to point out a few more aspects, which might have been overlooked in the public debate.
First, we would like to make reference to savings and retail banks’ “Foundations”. These are socially committed bodies which are nourished by banks’ dividends. Hence, at the end of the day, a too restrictive dividends policy may be to the detriment of those who usually benefit from the Foundations projects. The fight against poverty, the fight for better financial literacy, and the support of small and regional projects are examples of what is being channelled through the valuable work of ESBG members’ Foundations.
Furthermore, we would like to recall the large number of small shareholders of savings and retail banks that hold bank equity. A bank dividend can, to a certain extent, sustain these shareholders’ income and facilitate that money flows back in the local economy.
Last, but not least, even if savings banks’ business model is characterised by a very regional focus, financial services, financial markets and the flow of money are global. No savings and retail bank can avoid this global dimension. If European banks are becoming less attractive to investors than non-European peers, the cost of capital for EU banks will become higher.
ESBG members have been standing by their customers since day one of the crisis, for example by issuing a great number of additional loans and by swiftly agreeing with their customers on payment moratoria. It goes without saying that ESBG members will continue to do their utmost to reduce the negative effects of the crisis for their customers, who often are households and SMEs. However, savings and retail banks – as well as their Foundations and their beneficiaries – also depend on a well-balanced regulatory framework provided by the legislators and authorities, which might have counterproductive effects.
Note to editors:
The European Central Bank (ECB) recommended that banks exercise extreme prudence on dividends and share buy-backs. To this end, the ECB asked all banks to consider not distributing any cash dividends or conducting share buy-backs, or to limit such distributions, until 30 September 2021.