The European Banking Authority (EBA) is continuing to make recommendations on the application of prudential banking rules during the COVID-19 pandemic.
On Thursday 2 April, the European authority specified the rules that would be applicable in the event of moratoria on the repayment of loans by companies and individuals that would have been settled before the end of June 2020.
In particular, these guidelines clarify which type of cross-cutting national measures—whether legislative or not—do not trigger a classification as moratorium practices (forbearance classification), with other situations having to be assessed on a case-by-case basis.
Since the rest of the regulatory framework remains in place, banks must continue to adequately identify and classify those situations where obligors may face longer term financial repayment difficulties. “This is crucial to provide true information about the quality of banks’ portfolios to market participants, and to ensure that institutions are adequately capitalised”, the EBA emphasised.
The guidelines on moratoria can be viewed here: https://bit.ly/3aKfuRW
Stop paying dividends. At the end of March, the European authority also expressed its views on paying out dividends to shareholders. The EBA emphasised that the capital relief resulting from the measures adopted by competent authorities in response to pandemic “are to be used to finance the corporate and household sectors and not to increase the distribution of dividends or make share buybacks for the purpose of remunerating shareholders”.
See dividend declaration: https://bit.ly/3dTm3Un
The European Central Bank, acting as the single banking supervisor in the euro area, has also asked banks not to pay dividends to their shareholders “until at least 1 October 2020” in respect of the 2019 and 2020 fiscal years. Banks should also refrain from share buy-backs aimed at remunerating shareholders.
This ECB recommendation does not retroactively cancel the dividends already paid out for the financial year 2019. However, banks that have asked their shareholders to vote on a dividend distribution proposal in their upcoming General Shareholders Meeting will be expected to amend such proposals in line with the updated recommendation.
See ECB recommendation: https://bit.ly/39AE4TP (Original version in French by Mathieu Bion)