Banks should apply conservative distribution policies in the period ahead
Published: 20 January 2021
The Ministry of Finance has now given its assessment of how the recommendation issued by the European Systemic Risk Board (ESRB) on dividend distributions should be pursued in Norway.
On 18 December, the European Systemic Risk Board (ESRB) issued a new recommendation to national authorities to request banks and insurers to refrain from making dividend distributions, etc. until 30 September 2021, unless the institutions apply extreme caution and the distributions do not exceed the conservative thresholds set by the national supervisory authorities. The recommendation is based on the continued uncertainty about the future impact on economies and financial institutions of the ongoing crisis resulting from Covid-19.
In a letter sent to the Ministry of Finance on 21 December 2020, Finanstilsynet gave its assessment of how the recommendation should be followed up in Norway. In a letter of 20 January 2021, the Ministry of Finance has given its assessment. Finanstilsynet will base its follow-up of financial institutions’ dividend distribution plans on the Ministry of Finance’s assessment.
At the same time, Finanstilsynet emphasises that all profit distributions must be assessed in the context of the institutions’ financial position, regardless of the thresholds set out as part of the government's measures to promote financial stability, cf. the Ministry of Finance's letter of 20 January 2021. Financial institutions are expected to conduct stress tests showing the consequences of negative scenarios and consider their capital needs in the light of this. Pursuant to Section 10-6 of the Financial Institutions Act, Finanstilsynet may, when necessitated by a financial institution's financial position, order the institution not to make dividend payments.
In the current situation, Finanstilsynet expects banks and insurers to inform Finanstilsynet well in advance of any draft proposal made by their boards of directors on dividend payments and other distributions. It should be noted that some distributions are subject to application.