ECB recommendation on dividend distribution during the COVID-19 pandemic and repealing recommendation ECB/2020/1

On 27 March 2020, the European Central Bank (“ECB”) issued a recommendation whereby it held that the conservation of capital resources by credit institutions should take priority at present over discretionary dividend distributions and share buy-backs amid the COVID-19 related economic shock. The ECB deems it crucial that credit institutions be able to continue to fulfill their role in funding households as well as small and medium businesses in an economy of heightened uncertainty owing to COVID-19.

The ECB has recommended that until 1 October, 2020 (i) no dividends are to be paid out by credit institutions; (ii) no irrevocable commitment to pay out dividends is to be undertaken by credit institutions for the financial year 2019/2020; and (iii) credit institutions should also refrain from entering into share buy-backs aimed at remunerating shareholders.

Credit institutions that are unable to comply with this recommendation because they consider themselves legally required to pay-out dividends should immediately explain the underlying reasons to their joint supervisory team.

This recommendation shall apply in respect of

(i) significant supervised entities (as defined in Article 2(16) of the SSM Regulation); and
(ii) significant supervised groups (as defined in Article 2(22) of the SSM Regulation).

The recommendation is also being addressed to national competent and designated authorities with regard to less significant supervisory entities and less significant supervisory groups – national competent and designated authorities are expected to apply the recommendation to such entities as they deem appropriate.

Full text of the recommendation accessible here.