Jun 30, 2022
ECB to Ask Banks to Weigh Russian Gas Embargo in Dividend Plans
, Bloomberg News
(Bloomberg) -- The European Central Bank plans to ask the region’s lenders to factor in the economic hit of a potential cut off of Russian gas when considering payouts to shareholders.
“We will propose to ask banks to recalculate their capital trajectories under a more adverse scenario including also potentially a gas embargo or a recession,” said Andrea Enria, who leads the ECB’s supervisory board. The watchdog would “use this also for the purpose of vetting their distribution plans going ahead.”
European banks have seen their prospects clouded as Russia’s invasion of Ukraine raises the possibility of a wave of soured loans given a spike in inflation and companies’ difficulty in sourcing commodities. That’s a stark difference to the beginning of the year when European banks were luring back investors with pledges to return billions of euros in capital via dividends and share buybacks.
Enria has previously said that the ECB had asked banks to take a more prudent view on capital planning. The matter will be discussed by the supervisory board next week, he told lawmakers in Brussels on Thursday.
Germany’s economy could contract by 12.7% in the remainder of this year should Russia fully turn off natural gas supplies, an industrial group including some of the biggest German companies said in a report this week. Russian supply through Nord Stream -- the biggest pipeline to the European Union -- has dropped by 60%, and a further decline is approaching with the link scheduled to fully shut for maintenance next month. Deutsche Bank AG Chief Executive Officer Christian Sewing said earlier this month that he expects a recession if Russian gas is cut off.
The ECB has a fine line to tread on payouts after a de facto ban at the start of the pandemic sent bank stocks plunging and opened the regulator to criticism that it was making it harder for lenders to raise capital. Enria has defended those actions, yet turned down an offer by European lawmakers to be given powers to impose wide restrictions on dividends and buybacks.
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