In light of the economic uncertainty caused by the ongoing coronavirus pandemic, FI expects banks, including credit institutions and other financial firms such as insurance companies, to be restrictive with dividends and share buybacks until 30 September 2021. During this period, total dividends from and buybacks by the banks should not exceed 25 per cent of their aggregate net earnings for the two financial years 2019–2020.
"The banks need to continue to be restrictive with dividends through September of next year. Any dividends made during this period should not exceed 25 per cent of the earnings from the two previous years. This will maintain the banks' resilience while also allowing profitable banks to pay limited dividends to their shareholders. It continues to be important to ensure that the banks can provide loans to support the economy during and after the pandemic," says FI's Director General Erik Thedéen.
FI recommends today that banks and other financial firms be restrictive in their decisions to issue dividends and buyback shares during 2021. Due to the economic uncertainty, financial firms need to have significant margins in order to be able to handle potential problems in the future. In cases where firms still make the assessment that they can pay dividends or buy back shares, FI takes the position that the dividends/buybacks should be limited until 30 September 2021. FI intends to apply the recommendation proportionately to take into account an individual firm's importance for the risks to financial stability and its role in financing the recovery of the economy during and after the coronavirus pandemic.
FI is announcing its recommendation in conjunction with the announcement by the European Systemic Risk Board (ESRB), of which Sweden is a member as an EU Member State, that it has reached a decision to update its previous recommendation on financial firms' distribution of capital during the coronavirus pandemic. Both ESRB and FI previously recommended no dividend payments in 2020. This recommendation reflected the exceptional and challenging conditions and the considerable uncertainty present in both the global and Swedish economy in 2020. FI's revised recommendation reflects the authority's perception that the uncertainty in long-term macroeconomic outlooks has decreased slightly. FI's view is in line with corresponding assessments by the ESRB and the EBA.
FI's revised recommendation aims primarily to ensure that the banks are able to absorb losses and issue credits to support the economy during and after the pandemic. Based on its stress tests, FI makes the assessment that the major banks will remain well-capitalised and they can be expected to successfully meet the needs of firms and households for loans during and after the pandemic. However, economic uncertainty continues to be elevated, shocks of various types could continue to occur, and extensive support measures from the state are still in place. The risk that the pandemic's economic ramifications will have a significant impact on the banks' balance sheet has not yet passed.
In an overall assessment, FI takes the position that it should be possible for banks to pay dividends in 2021 but that it is necessary to maintain a cautious approach to ensure that the banks' resilience is preserved even in the event of unexpected and unfavourable economic outcomes. Banks that intend to pay dividends or buy back shares must be profitable and have the capacity to do so based on a particularly conservative assessment of their capital needs now and in the future. Given the continued uncertainty of the economic impact from the coronavirus pandemic, FI expects an individual bank's total dividend payments and share buybacks during the period up to 30 September 2021 to not exceed 25 per cent of the total aggregate net earnings for the two financial years 2019 and 2020. The banks should consult with FI prior to any dividend and buyback proposals.
Similar to the recommendation that applied in 2020, FI's recommendation for 2021 should be viewed as an exceptional measure. The revised recommendation applies until the end of September 2021. If events do not take a significant turn for the worse before this date, FI will repeal the recommendation and return to the normal supervision process for the assessment of the banks' risks and capital needs. Under normal conditions, the banks' boards of directors bear full responsibility for assessing the capital buffers of the banks over and above the capital requirements set by FI and thereafter proposing dividends to their annual general meetings.