Danish Watchdog Tells Banks to Withhold Investor Rewards, Bonuses

(Bloomberg) -- Denmark’s financial regulator is advising banks not to pay out shareholder rewards or extra bonuses to staff until 2021 at the earliest, in keeping with European Union guidelines.

The Financial Supervisory Authority in Copenhagen said on Friday it expects banks to spend cash freed as result of laxer requirements on lending.

Ulrik Nodgaard, the head of the finance industry’s main lobby organization, Finans Danmark, said it’s crucial that restrictions on dividends, buybacks and bonuses don’t drag into 2021.

“It’s critical that banks and mortgage institutions whose capital has doubled since the financial crisis are able to resume dividend payments in 2021....If investors don’t get adequate returns on their investments, we risk that they no longer consider banking as an industry worth investing in,” Nodgaard said in an email.

The FSA’s warning comes as Denmark’s financial risk council tells banks they may face a 2022 deadline to rebuild so-called countercyclical buffers that were lifted during the Covid-19 crisis. A study published by Denmark’s central bank on Friday concluded that lenders should restore the buffer as soon as possible.

Read More: BlackRock Tried to Fight Danske Board’s Plan to Raise Its Pay

Requiring the financial industry to rebuild extra capital early would increase its net worth and ultimately soften the impact of pandemic, the paper concluded.

“Once the net worth of the banking sector is wiped out, creditors become unwilling to roll over their lending to banks,” the paper said.

©2020 Bloomberg L.P.