Constructive assessments by the Ministry of Finance on the distribution of dividends

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Constructive assessments by the Ministry of Finance on the distribution of dividends

The Norwegian Ministry of Finance has issued a recommendation on the Norwegian follow-up of the revised recommendation on dividend payments by the European Systemic Risk Board (ESRB).

The Ministry asks Norwegian banks, after careful assessment and based on the ESRB's recommendation, to keep total distributions within a maximum of 30 percent of the total annual result for the years 2019 and 2020, until the end of the third quarter of 2021.

Dividend restrictions on banks were introduced in response to the challenges in both the real economy and the banking industry in Europe as a result of the corona pandemic. The Norwegian economy has performed significantly better than most European countries, and it is forecast that Norwegian activity will pick up during 2021.

Norwegian banks are among the best capitalized in Europe, and in contrast to the average of banks in the EU, they still have a sound profitability despite an increase in booked loan loss provisions. Lending activity has also been maintained by Norwegian banks through the corona crisis. In addition, Norwegian banks have a countercyclical buffer of 1 percent, while a vast majority of European countries have reduced this to 0 percent, including Sweden and Denmark.

− It is important that the extraordinary restrictions on dividend payments are temporary, and that normal corporate governance practices are re-established as soon as possible, says Erik Johansen, Director of Banking and Capital Markets at Finance Norway.

Finance Norway shares the Ministry of Finance's view that both profitability and capitalization in Norwegian banks indicate a less restrictive stance compared to the limit proposed by the Norwegian Financial Supervisory Authority.

It is also positive that the Ministry has announced a change in regulations for savings banks, which will enable these banks to make decisions on the allocation of surplus funds well in advance.

− Overall, this is a constructive solution, and it is positive that the Ministry signals a normalization after September 30, Johansen says.