Norway Banks Warned to Stop Enriching Owners as Crisis Rages

(Bloomberg) --

The financial watchdog in Norway has admonished the country’s banks for failing to rein in shareholder rewards in the middle of a global crisis that risks morphing into a credit crunch.

The Financial Supervisory Authority in Oslo now wants Norway’s government to step in to force the industry to drop dividends, after bank capital rules were relaxed with a view to getting more credit into the economy.

The warning comes amid signs Europe’s top banking lobby is trying to find common ground among lenders on whether to abandon dividends. In the Nordic region, Sweden has already made clear it expects banks to preserve cash rather than enrich shareholders as long as the crisis lasts.

Norway’s Finance Ministry will make a decision on the FSA’s proposal shortly, it said in an email, declining to comment further. Finance Norway, which represents the country’s banks, said banning dividends was unnecessary and would create uncertainty among investors.

Dividend Deadline

Norway’s FSA had given banks and insurers a March 23 deadline to reconsider their dividend plans. Some lenders have already opted to drop shareholder rewards, while others have made limited cuts.

But DNB ASA, Norway’s biggest bank, so far hasn’t adjusted its policy. It’s not due to discuss the matter until an annual shareholder meeting in April, news agency TDN reported.

DNB’s own research unit said in a client note that paying out dividends to bank investors might be an efficient way to re-allocate capital and support the economy, but that it expects payouts to be restricted “given the current uncertainty and political climate.”

While the Norwegian FSA has the power to order banks and insurers to hold back payouts, a general restriction on dividends is necessary in light of the significant uncertainty that now exists and the danger of a widespread crisis, it said.

“The shock that has now hit the economy and the markets is of a different nature than shocks that have previously triggered financial crises,” it said.

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