WIKIFX REPORT: ECB scrutinises banks’ payout plans as outlook sours

The European Central Bank is carefully scrutinising euro zone banks‘ payout plans as the outlook for the bloc’s economy sours and markets wobble, the ECBs top supervisor Andrea Enria said on Monday.

With the euro zone facing an energy crisis and rising borrowing costs, the ECB has told banks to factor in the risk of a recession when estimating how much capital they will be able to pay out in dividends, buybacks and bonuses.

“We have… collected updated capital projections from (banks) and carried out deep dives in a number of areas,” Enria told finance ministers meeting in Brussels.

“We are assessing potential vulnerabilities stemming from the current environment based on these projections.”

The ECB‘s cautious stance has already met with resistance from one bank – Italy’s UniCredit – which according to the Financial Times had some tense exchanges with supervisors over its capital distribution plans.

Enria told ministers banks should be ready to change their plans if loans sour, financial markets become even more unstable or other risks materialise.

“Overall, the risks to the banking sector have increased and the current environment is characterised by substantial uncertainty,” Enria said.

“(Banks) must therefore remain prudent, proactively adjust their strategies and planning, and continuously monitor and manage risks stemming from the current environment.”