Sweden became the first European country to open up the possibility of banks resuming dividend payments next year in a sign that regulators think the financial stress from Covid-19 is easing.
Sweden’s financial regulator said on Wednesday that if the economy continues to stabilise and banks stay profitable they would be able to reward shareholders in 2021.
“If the recovery continues into 2021, uncertainty does not increase, and the banks continue to demonstrate sound credit quality, it will be reasonable for profitable banks to pay some dividends,” said Erik Thedeen, director-general of Sweden’s financial supervisory authority.
Bank regulators across Europe effectively banned banks from paying out dividends early in the coronavirus crisis, urging them to preserve capital amid fears of a large economic downturn.
UK lenders have been particularly vociferous about their desire to resume shareholder payouts again as their results have improved while the European Central Bank is set to review its stance next month.
Swiss banks are still allowed to pay dividends but UBS and Credit Suisse both decided in April to delay half of their 2019 payouts until the end of November or start of December.
Swedish banks such as Handelsbanken, SEB and Swedbank are among the best capitalised in Europe and have come through the coronavirus crisis with lower credit losses than many expected in March.
Sweden’s economic decline is also expected to be less than initially forecast — economists at SEB now expect the economy to contract by 3.1 per cent this year, half as much as they predicted in May.
But the SEB economists also recently reduced their forecast for 2021 from 4.2 per cent growth to 2.7 per cent as new Covid-19 restrictions in Sweden and the rest of Europe dampen expectations.
Mr Thedeen said that the uncertainty around coronavirus had alleviated but not completely subsided.
He added: “I would really like to emphasise that this assumes that the situation and the forecasts have stabilised, the banks’ resilience to unfavourable economic outcomes is maintained, and the credit supply is functioning. So far, the banks have been part of the solution to the crisis, and it is important that this continues.”
Sweden drew international attention for its lack of a formal lockdown in the first wave of the coronavirus pandemic. It has continued to stand out from the crowd in the second wave, refusing to order people to wear masks and only imposing regional recommendations on how the public should behave rather than legally enforceable restrictions.
Sweden’s financial regulator said it would analyse the situation continuously as well as participate in discussions with other international supervisors about how best to tackle the issue of dividends. Nordea, the largest bank in the Nordics, moved its headquarters from Sweden to Finland in 2018 and so is still subject to the ECB’s ban.
Yves Mersch, an ECB board member, said in September that it would review the ban next month and “unless we conclude that the banks’ capital projections remain clouded by high uncertainty, we will revert to our usual supervisory practice of assessing planned distributions of dividends on a bank-by-bank basis”.