Local investors may breathe a sigh of relief as the restriction on bank dividends will be lifted as from tomorrow Friday 1st October, in a sign that the COVID-19 pandemic’s effect on the economy is tapering down.

The Malta Financial Services Authority is lifting its restrictions on dividends that banks can pay shareholders that were implemented as part of the measures to manage the impact of the COVID-19 pandemic on the financial system.

The restrictions supported the financial resilience of banks so they could continue to support lending to the real economy through the period of the pandemic.

The lifting of restrictions is in line with European Central Bank and European Systemic Risk Board decisions in this regard, with the ECB deciding in July to lift the restrictions as from the fourth quarter of the year.

The ECB said that it will continue to assess banks’ remuneration policies and the impact such policies may have on a bank’s ability to maintain a sound capital base

The MFSA meanwhile noted, in a circular released on Thursday, that reduced uncertainty and the resilience acquired means that it can lift these restrictions.

The MFSA reminded credit institutions that they should remain prudent when determining levels of dividends and share buy-backs.

“They should take decisions informed by their stress testing, capital plans and business model sustainability evaluation,” it said.

“Furthermore, credit institutions should continue to adopt a prudent and forward-looking approach when deciding on remuneration policies.”

Bank dividends were suspended in March 2020 as the COVID-19 pandemic washed over Europe, wreaking havoc on member states’ economies.

They were suspended in a bid to boost banks’ capacity to absorb losses and to support lending to households, small businesses and corporate bodies during the pandemic.

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