The Central Bank has taken action allowing banks to use the capital buffers they have built in recent years to support households and businesses. The Central Bank has released the Countercyclical Capital Buffer from 1% to 0%. Similarly, the European Central Bank's (ECB) Single Supervisory Mechanism, of which the Central Bank is part, has announced that banks can temporarily use some of the supervisory capital buffers that they have built up in recent years.
These actions mean that banks will be better placed to continue to serve the economy, households and businesses at this difficult time. For example, some businesses may be looking for increased access to credit, given the broader disruption in economic activity. Our actions mean that banks will not be constrained by regulatory capital buffers in providing that credit to businesses.
We have been clear in our expectation that banks use the positive effects of these measures solely in support of the economy and not for dividend distributions or remuneration. This message was reinforced by the ECB Single Supervisory Mechanism, of which the Central Bank is part, which recommended that banks do not pay dividends or buy back shares during this challenging period. This will further boost banks’ capacity to absorb losses and supporting lending to household, small businesses and corporates during the pandemic. Dividends for the financial years 2019 and 2020 should not be paid until at least 1 January 2021. Furthermore banks should also refrain from share buy-backs aimed at remunerating shareholders.
The Central Bank acknowledges the recent Recommendations of the ECB (ECB/2020/62) and ESRB (ESRB/2020/15), and the EBA Statement, relating to dividends and other distributions. The Central Bank is aligned with their views that institutions should apply a conservative approach to dividends and other distributions in light of the continued uncertainty surrounding the COVID-19 pandemic. The Central Bank will be communicating with credit institutions further on this matter in the coming weeks. In the interim we expect credit institutions to continue to follow our existing guidance beyond 01 January 2021.
Over the past decade, the Central Bank has taken action to strengthen the resilience of the banking system. That additional resilience is there to be used in moments like this, supporting households and businesses in the face of this unprecedented shock.