ECB Signals Green Light on Bank Dividends

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The European Central Bank said it expects to lift restrictions on dividend payments and share buybacks for the continent’s lenders later this year, signaling it believes banks are resilient enough, despite a challenging environment under the pandemic.

With Thursday’s decision, the ECB is following the footsteps of the Federal Reserve, which recently ended temporary limits on payouts. Since then big banks such as Morgan Stanley , JPMorgan Chase & Co. and Bank of America Corp. have all increased their dividends.

The economic outlook in Europe has improved and banks have maintained strong levels of capital, Andrea Enria, head of banking supervision at the ECB, told European Parliament members at a hearing. Banks’ profitability has also recovered from drops in the first half of last year, when they had to set aside money to cover for potential loan defaults.

“In the absence of materially adverse developments, we plan to repeal our recommendation as of the end of the third quarter of 2021 and return to reviewing dividends and share buybacks as part of our normal supervisory process,” Mr. Enria said.

The Euro Stoxx Banks index has rebounded sharply over the past six months and is up 28% this year, compared with 14% in the Euro Stoxx 50 blue-chip index. Shares of many eurozone banks were up more than 2% at midday local time.

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