A growing number of top European Central Bank (ECB) officials are voicing support for ending the de facto ban on banks paying dividends during the pandemic, laying the groundwork for a resumption next year and a return of investor confidence to the sector.
Bank of France Governor Francois Villeroy de Galhau
became the third ECB governing council member to signal support for a resumption in payouts. Their comments will influence the debate on whether to end the ban at a meeting of the central bank’s supervisory arm next month.
European lenders, which saw their shares lag the market this year, have repeatedly warned that extending the measure would risk cutting them off from investors. Yet despite optimism that the end of the pandemic is in sight, some regulators are worried that if they allow payouts, banks may lack the financial reserves to bear losses without taxpayer bailouts.
“The ECB lives from expectations and the comments on dividends from policy makers these last days have clearly helped banking stocks,” said Markus Herrmann, a banking analyst at Landesbank Baden-Wuerttemberg in Stuttgart. “But I don’t think investors should be too optimistic.”
Villeroy told a conference of regulators that while it was right to put all profits into reserves in 2020, there are now arguments in favor of resuming payouts. ECB Executive Board member Fabio Panetta earlier said banks should be prudent, but it would be reasonable to take a case-by-case approach.
The policy makers didn’t spell out when the ban would be lifted or whether banks would be free to pay out as much capital as planned. The ECB’s supervisory arm will decide on the details next month, although that plan needs to be signed off on by the Governing Council.