OSLO (Reuters) - Norway became one of the first European countries on Wednesday to consider banning banks from paying dividends, as the coronavirus outbreak thrusts the globe into crisis.
In a proposal to the finance ministry, Norway’s Financial Supervisory Authority said the country’s banks and insurers should not be allowed to pay dividends for now given the grave consequences of the outbreak.
The Norwegian regulator’s move puts it at the forefront of action taken elsewhere in Europe. Earlier in the week, Germany’s financial watchdog urged banks to refrain from share buybacks and think twice before paying dividends and bonuses.
There have been similar calls from officials in Sweden and France.
European regulators have recently loosened rules to make it easier for banks to lend to avoid a collapse of the economy, but they want to prevent the money, which ultimately comes from taxpayers, ends up in the pockets of shareholders or bankers.
“In this critical situation, taxpayers’ money is meant to support our health systems and the real economy and not to rescue again carelessly acting banks,” said Sven Giegold, a German member of the European parliament.
The European Central Bank, which has said it will buy more than 1 trillion euros in bonds and provide cheap financing to banks to fund companies, also expects banks to make “prudent decisions” on payouts.
Last week, a group of former senior regulators said in a statement to G20 finance ministers and central bankers that commercial lenders should immediately halt share buybacks, dividends and most staff bonuses to bolster their capital and their capacity to lend to the real economy.
In making its recommendation, Norway’s FSA said banks could face significant losses due to the outbreak, while insurers risk lower income due to a fall in interest rates and could also see a drop in asset values.
A decision on whether to allow dividend payments to be made for the 2019 fiscal year will be made “as soon as possible”, a finance ministry spokesman told Reuters.
The financial industry lobby group, however, said the ministry should reject the proposal.
Most banks have proposed payments for 2019 and are due to hold shareholder meetings in coming weeks to approve the plans.
The regulator has previously urged banks to reconsider dividend payments and buybacks.
The coronavirus outbreak has already taken a heavy toll on Norway, with unemployment rising fivefold in recent weeks to its highest level since the 1930s.
Norway’s largest bank, DNB (DNB.OL), said on Monday it was still considering whether to maintain its plan of paying out a dividend at its annual general meeting at the end of April.
Insurer Gjensidige (GJFS.OL) dropped on Monday a proposal to distribute an extraordinary dividend of 5 Norwegian crowns per share, but maintained plans for paying out an ordinary dividend of 7.25 crowns.
The regulator said any ban on dividends could be reversed at a later time if circumstances change.
Some other banks have pulled their dividends voluntarily. Santander of Spain, hard hit by the outbreak, on Monday became the first major euro zone lender to announce that it would scrap an interim payment in November and review its 2020 dividend.
The London Stock Exchange on Wednesday said it would allow companies listed on its market to defer payment of dividends for up to 30 days due to coronavirus hitting markets.
Additional reporting by Tom Sims in Frankfurt and Francesco Guarascio in Brussels; Writing by John O'Donnell; Editing by Toby Chopra