(Bloomberg) — European banks should avoid paying out too much excess capital to shareholders after turmoil in other jurisdictions clouded the outlook for the industry, according to a top European Central Bank official.
(Bloomberg) — European banks should avoid paying out too much excess capital to shareholders after turmoil in other jurisdictions clouded the outlook for the industry, according to a top European Central Bank official.
“Given the uncertainty produced by the events in the US and Switzerland, banks have to be prudent,” ECB Vice President Luis de Guindos said Wednesday in an interview with Bloomberg TV in Frankfurt. “Capital is key and liquidity is becoming more and more relevant.”
Global banking was shaken this year by the collapse of several US lenders that were overly exposed to rising borrowing costs, as well as the emergency takeover of Credit Suisse Group AG following a crisis of confidence.
But well capitalized European banks including UniCredit SpA, BNP Paribas SA and ING Groep NV have announced billions of euros of share buybacks to reward shareholders as higher rates juice their quarterly profits.
“Increasing interest rates is good for European banks, but we cannot be complacent,” Guindos said. “We cannot focus only on the short-term impact of the increasing interest rates.”
The ECB said earlier Wednesday in its bi-annual financial stability review that banks “should refrain from increasing payout ratios further.”
The vice president said lenders face revenue erosion from a slowdown in credit, rising funding costs and “an impact on solvency of the clients of the banks” from lower growth.
While Guindos oversees the ECB’s efforts to maintain financial stability, his colleagues in banking supervision are responsible for approving plans by lenders to buy back shares. Andrea Enria, the top oversight official, said this year that he’s not considering a repeat of controversial blanket restrictions on payouts by banks during the pandemic.
Still, Guindos signaled that the ECB will take a close look at payouts and other metrics of banks’ financial strength.
Bloomberg reported this month that the ECB is stepping up scrutiny of lenders’ liquidity reserves and may communicate stricter requirements to individual firms later this year.
“Supervisors will pay a lot of attention to the evolution of capital and to the evolution of liquidity and the different composition of the liquidity ratios of the European banks,” Guindos said.
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