(1)

On 27 March 2020, the European Central Bank (ECB) adopted Recommendation ECB/2020/19 of the European Central Bank (2) which recommended that at least until 1 October 2020 no dividends are paid out and no irrevocable commitment to pay out dividends is undertaken by credit institutions for the financial years 2019 and 2020 and that credit institutions refrain from share buy-backs aimed at remunerating shareholders. This recommendation was based on the consideration that it is crucial that credit institutions continue to fulfil their role of funding households, small and medium-sized businesses and corporations amid the COVID-19-related economic shock. Therefore it was considered essential that credit institutions conserve capital to retain their capacity to support the economy in an environment of heightened uncertainty caused by the COVID-19 pandemic. To this end, conserving capital resources to support the real economy and absorb losses was considered as needing to take priority over discretionary dividend distributions and share buy-backs.

(2)

In connection with Recommendation ECB/2020/19, the ECB has undertaken work to further evaluate the economic situation and consider whether further suspension of dividends is advisable after 1 October 2020. In this context, the ECB considers that the level of economic uncertainty due to the COVID-19 pandemic remains elevated and, consequently, that credit institutions face difficulties in forecasting accurately their medium-term capital needs. The ECB also considers that there is an ongoing need in this environment of exceptional systemic uncertainty and stressed economic conditions for prudent capital planning, which includes preserving credit institutions’ capital position by postponing or cancelling distributions. Therefore, the ECB considers it necessary to extend the dividend recommendation until 1 January 2021 and repeal Recommendation ECB/2020/19. This approach is also consistent with Recommendation ESRB/2020/7 of the European Systemic Risk Board (3).

(3)

Having full regard to the unity and integrity of the internal market, the ECB sees the need to engage in discussions with the relevant authorities of concerned Member States to determine whether it is appropriate that dividends are paid out to a parent institution, parent financial holding company or parent mixed financial holding company located in a Member State which is not a participating Member State. These discussions should be guided, inter alia, by the principles of equivalence and reciprocity with a view to supporting the smooth functioning of the internal market of the Union as a whole, to preserving a sound capital position of a credit institution from a prudential perspective and to contributing to the stability of the financial system within the Union and each Member State.

(4)

In order to maximise support to the real economy, it is also appropriate that discretionary dividend distributions should also not be made by less significant credit institutions.

(5)

While this measure has a temporary nature that is warranted only by these exceptional circumstances, the ECB intends to decide in the fourth quarter of 2020 on the approach to be followed after 1 January 2021, taking into account the economic environment, the stability of the financial system and the level of certainty around capital planning,

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