(1)

On 27 March 2020, the European Central Bank (ECB) adopted Recommendation ECB/2020/19 of the European Central Bank (2) which recommended that at least until 1 October 2020 no dividends are paid out and no irrevocable commitment to pay out dividends is undertaken by credit institutions and that credit institutions refrain from share buy-backs aimed at remunerating shareholders. On 27 July 2020, the ECB prolonged this recommendation until 1 January 2021 by adopting Recommendation ECB/2020/35 of the European Central Bank (3). These Recommendations were based on the consideration 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. Therefore, it was considered essential that credit institutions conserve capital to retain their capacity to support the economy in an environment of heightened uncertainty caused by the COVID-19 pandemic. To this end, preserving capital resources to support the real economy and absorb losses was deemed to be a priority over discretionary dividend distributions and share buy-backs.

(2)

Even with the improvement in macroeconomic conditions and the reduction of economic uncertainty due to the COVID-19 pandemic since 27 March 2020, the level of uncertainty remains elevated with a continued impact on banks’ ability to forecast their medium-term capital needs. Given the ongoing public support measures and considerable delay of the impact of the economic fallout on the balance sheets of credit institutions, the full effect of the COVID-19-related economic shock on the banking sector may not have yet fully materialised. This persisting uncertainty calls for extreme prudence in the distribution policies and practices of credit institutions. Therefore, the ECB sees the need to encourage credit institutions to continue to refrain from making dividend distributions and share buy-backs. In any event, it is of the utmost importance that credit institutions in their deliberations on dividend distributions and share buy-backs should be guided by their internal capital generation capacity viewed on a forward-looking basis, and the upcoming impact of the economic fallout on the quality of their exposures and capital. In addition, the ECB generally considers that it would not be prudent for those credit institutions in those deliberations to consider making a distribution and share buy-backs amounting to more than 15 % of their accumulated profit for the financial years 2019 and 2020, or more than 20 basis points in terms of the Common Equity Tier 1 ratio, whichever is lower.

(3)

Having full regard to the unity and integrity of the internal market, the ECB sees the need to engage in discussions with the relevant authorities of concerned Member States to determine whether it is appropriate that dividends are paid out to a parent institution, parent financial holding company or parent mixed financial holding company located in a Member State which is not a participating Member State. These discussions should be guided, inter alia, by the principles of equivalence and reciprocity with a view to supporting the smooth functioning of the internal market of the Union as a whole, to preserving a sound capital position of credit institutions from a prudential perspective and to contributing to the stability of the financial system within the Union and each Member State.

(4)

In order to maximise support to the real economy, less significant credit institutions should also exercise extreme moderation in their distribution policies in line with this Recommendation.

(5)

This measure has a temporary nature and is warranted only by current exceptional circumstances. In the absence of materially adverse developments, on 30 September 2021 the ECB intends to repeal the recommendation and return to assessing banks’ capital and distribution plans based on the outcome of the normal supervisory cycle,

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