Swedish Banks Told to Drop Dividend Plans for Uncertain 2021

(Bloomberg) -- Sweden’s government is warning banks not to assume they’ll be strong enough to pay dividends after the end of this year, as the economic outlook for 2021 remains uncertain.

Financial Markets Minister Per Bolund said, “We will not be able to accept dividends that have a negative effect on the possibility of also having strong lending in 2021.”

“Banks need to be restrictive and to not be in a hurry with making that kind of promise, until we know more,” Bolund said in an interview.

The warning is the latest sign that European policy makers are increasingly worried about the economic outlook for next year, after initially signaling to banks they might be free to resume dividends in 2021. The European Central Bank has put in place an effective ban till the end of the year, but there’s now discussion of extending that time frame as the pandemic tightens its grip.

Sweden’s biggest banks have already declared their intention to resume dividends as soon as the regulator permits them to do so. That’s after their third-quarter results revealed bigger capital buffers and smaller loan losses than feared.

In an interview last month, the chief executive of SEB AB, Johan Torgeby, said he found it “not appropriate” that the country was following the European Union’s de-facto ban on dividends.

Torgeby is far from alone. Jens Henriksson, the CEO of Swedbank AB, said in October that his bank’s “financial position is strong, and we want to pay a dividend.”

In its full-year 2019 report, Swedbank announced a dividend equivalent to half its total profits, which it has yet to pay. SEB, which also shelved dividends for 2019, paid out 70% of profits in 2018.

Economic Fears

Bolund said the climate now is far from conducive to resuming such payouts.

“We have seen previous examples of how a negative economic development can quickly spill over into the financial system and lead to added risks,” he said. “And for the real economic development not to be hampered, there must be a possibility for companies to borrow to bridge this situation. The banking system must have the capacity for that.”

The minister spoke as the infection rate in Sweden continues to spiral upwards, putting pressure on the country’s health-care system.

“We now have a new situation with an increase in infections,” Bolund said. “And due to that, there are also more restrictions. And that is of course affecting the real economy and the financial markets.”

Bolund rejected the suggestion that Sweden could disregard decisions taken at the EU level. “We need to have a coordinated view, so it doesn’t differ too much between different countries,” he said.

“I think that in the spring we will have a clearer picture, for example on how vaccinations are progressing and what the impact will be on the economy,” Bolund said. “Then we’ll be better equipped to make such an assessment.”

“But right now I don’t think it’s time to make commitments about large dividends,” he said.

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