Sweden was the first European country to open up the possibility for banks to resume dividend payments next year, signaling that regulators believe the financial burden of Covid-19 is easing.
The Swedish Financial Regulator said on Wednesday that if the economy continues to stabilize and banks remain profitable, they could reward shareholders in 2021.
“If the recovery continues through 2021, if uncertainty does not increase, and banks continue to have solid credit quality, it is appropriate for profitable banks to pay some dividends,” said Erik Thedeen, Director General of the Swedish Financial Supervisory Authority.
Banking regulators across Europe effectively banned banks from paying dividends at the start of the coronavirus crisis, urging them to raise capital amid fears of a major economic downturn.
UK lenders have been particularly vocal about their desire to resume payouts to shareholders as their results have improved while the European Central Bank will review its stance next month.
Swiss banks are still allowed to pay dividends, but UBS and Credit Suisse both decided in April to postpone half of their payouts for 2019 until late November or early December.
Swedish banks like Handelsbanken, SEB and Swedbank are among the best capitalized in Europe and have weathered the coronavirus crisis with fewer credit losses than many expected in March.
Sweden’s economic decline is also likely to be less than originally forecast. The SEB economists now assume that the economy will shrink by 3.1 percent this year, half as much as forecast in May.
But SEB economists have recently lowered their forecast for 2021 from 4.2 percent growth to 2.7 percent, as new Covid-19 restrictions in Sweden and the rest of Europe dampen expectations.
Mr Thedeen said the uncertainty surrounding the coronavirus had eased, but not completely subsided.
He added: “I really want to emphasize that this assumes that the situation and forecasts have stabilized, that banks remain resilient to adverse economic outcomes and that the credit supply works. So far, the banks have been part of the solution to the crisis and it is important that it stay that way. “
Sweden drew international attention because there was no formal lockdown in the first wave of the coronavirus pandemic. She continued to stand out from the crowd in the second wave, refusing to wear masks and only imposing regional recommendations on public behavior rather than legally enforceable restrictions.
The Swedish Financial Supervisory Authority said it will continuously analyze the situation and participate in discussions with other international regulators on how best to address the dividend issue. Nordea, the largest bank in the Nordic countries, relocated its headquarters from Sweden to Finland in 2018 and is therefore still subject to the ECB’s ban.
Yves Mersch, a board member of the ECB, said in September that it would review the ban next month. “Unless we conclude that banks’ capital projections remain tarnished with high levels of uncertainty, we will return to our normal supervisory practice in evaluating planned dividend payments on a bank-by-bank basis.”