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Five euro zone banks face payout cap after falling short of ECB demands
December 15, 2016 / 3:05 PM / a year ago

Five euro zone banks face payout cap after falling short of ECB demands

FRANKFURT, Dec 15 (Reuters) - Five large banks in the euro zone face a cap on how much they can pay in dividends, bonuses and coupons next year because they hold too little capital, the European Central Bank said on Thursday, warning that meagre profits and unpaid loans are weighing on the sector.

The ECB did not name the five banks, part of the roughly 130 it has supervised since becoming the currency bloc’s watchdog in 2014 with the aim of preventing a repeat of the 2008-12 banking crisis.

The ECB’s annual review comes as banks in Italy and other crisis-struck countries are under pressure to raise capital to cover losses from bad loans. Troubled Monte Paschi is likely to need state help after failing to attract enough investors.

Even after the ECB lowered its capital requirements from the previous year, the number of banks falling short remained unchanged at five.

The ECB demanded that, on average, banks hold Core Equity Tier 1 capital, a key measure of their own funds, equal to 8.3 percent of their risky assets if they are to pay out to staff and investors. That is down from 10.2 percent a year ago.

Banks falling below that face a cap on their payouts expressed as a proportion of any profit they make.

The drop in requirements comes after a change in the rules. The ECB now expresses parts of its capital demands as voluntary ‘guidance’, breaching which does not affect payouts. Once such capital guidance is factored in, the ECB’s demands were stable year on year at 10.1 percent. (Reporting By Francesco Canepa, editing by Larry King)

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