Banco de Portugal announced this Friday that as of October it will no longer recommend to institutions under its supervision to refrain from making or limiting the distribution of dividends and the repurchase of common shares, in line with what was also decided by the Bank. Central European Union (ECB). However, it is considered crucial that banks maintain a prudent approach.
The monetary authority led by Mário Centeno informs, in a statement, that “the necessary ones will not be extended beyond its expiration, in line with the approach adopted by the European Central Bank for the established institutions, in the context of the Single Supervisory Mechanism and by the European Systemic Risk Board”.
But it leaves a warning: “In any case, it is crucial that institutions maintain a prudent approach in the distribution of dividends and in the settlement and payment of variable remuneration, as required by the applicable legislation and applicable and taking into account the impacts arising from the pandemic which can still materialize, namely those relating to credit risks”.
In particular, technical, “institutions should take into account the impacts of distribution distributions on own funds projections and demonstrate sustained and prospective compliance with capital requirements. Such assessment should be based on prudent projections and ensure that capital is retained. to deal with a possible deterioration in asset quality and maintain financing for the economy.”
As part of the regular monitoring of supervised institutions, Banco de Portugal stresses that it “will continue to monitor the distributions planned by the institutions and will take supervisory measures that may prove necessary in this matter”.
The BdP thus follows the guidelines of the ECB, which in July had decided not to extend this recommendation beyond September 30th. In other words, as of October 1st, the pre-pandemic method of evaluating capital plans, paying dividends and repurchasing own shares is returned.
In a statement, an official led by Christine Lagarde said that the recommendations are not then extended beyond September, but stressed that banks should continue to be prudent, not underestimating credit risk when making their decisions on dividends. Something that Banco de Portugal is also mentioning now.
It is recalled that it was in March of last year that the ECB asked banks not to pay dividends, with the aim of strengthening their capacity to absorb losses and sustain credit credit to families and companies during the covidence pandemic. 19
In July 2020 a recommendation was reiterated, and then in December the ECB recommended that banks limit their attribution to shareholders (ie, moving from non-payment of dividends to payment with limits). The same applied to the repurchase of own shares.