DNB ASA is preparing to make a decision on 2019 dividends in November, despite uncertainty around whether a regulatory dividend ban might be lifted.
Norway's largest lender has set a date for an extraordinary general meeting on Nov. 30, in which the board will seek authorization to decide on the distribution of dividends of up to 9 kroner per share for 2019. The authorization will be valid between Jan. 1, 2021 and the annual general meeting in the second quarter of next year.
The board will also seek authorization to carry out share buybacks equivalent to up to 4% of the bank's share capital.
The announcement comes amid a current recommendation from the European Systemic Risk Board and Norwegian financial regulators that banks refrain from paying dividends until Jan. 1, 2021, in what has been characterized as a de facto ban on dividends.
Despite calls from banks to lift the ban, regulators could still decide to extend it further, particularly in light of widespread second-wave lockdowns across Europe.
When questioned during a news conference why DNB's board is seeking dividend authorization already this year, CEO Kjerstin Braathen said: "The signals from the [Norwegian] authority are aligned with the systemic risk board, which has a timeline until the end of the year."
Significant excess capital
DNB's board will still have to assess the robustness of the bank's financial position, the economic outlook and "any signals from the authorities if there were to come any after January next year," she said. She further emphasized that DNB has a "very robust capital situation."
The bank's common equity Tier 1 ratio stood at 18.9% at the end of September, an "all-time high" for the bank, CFO Ottar Ertzeid said.
This ratio does not include 2019 dividends of 9 kroner per share, nor 50% of its 2020 profits reserved for dividends. If these were added back into the capital buffer, DNB's CET1 ratio would have been 21.0% at the end of the third quarter, according to Ertzeid.
The regulatory capital expectation for DNB is currently 15.7%, and this could increase to 16.9% if the maximum countercyclical buffer requirement is reintroduced in Norway, which would happen in 2022 at the earliest. Even then, DNB would still have a two-percentage-point capital cushion above regulatory requirement, Ertzeid said.
"Based on this level, there should be a potential for distribution over time," he said on a call with analysts, adding that DNB does not intend to sit on more excess capital over time than is deemed necessary. "We do not need a two-percentage-point headroom," he said.
When asked if DNB has discussed its 2019 dividend proposal with Norwegian regulators, Braathen said the bank has "a close dialogue with the Norwegian authorities in general, both the Financial Supervisory Authority and the Ministry of Finance. I think that is what we can comment on that."
The bank will have to notify the financial regulator if it wishes to pay out the proposed 2019 dividends, but it will not need formal approval, Braathen said.
One word: 'Normal'
Talk of a possible dividend comes as DNB released its results for the third quarter, a period characterized by a return to normal activity levels, according to Braathen.
"If I were to be challenged on describing the customer activity and the business with one word during this quarter, the word would be 'normal,'" she said, adding that is a testament to how well the Norwegian economy and business activity is faring during the pandemic.
Profit attributable to shareholders landed at 5.29 billion kroner, down from 5.76 billion kroner a year ago, but higher than a consensus estimate of 4.30 billion kroner, based on 13 analyst predictions provided to the bank ahead of the earnings.
The extraordinary general meeting in November will also decide on a proposal for a new legal structure, which will merge DNB's holding company with the bank, making the bank the parent company in the DNB group, Ertzeid said. This change will make issuance of senior nonpreferred capital cheaper, while governance and reporting will become more efficient, he added. The merger is expected to take place in the middle of next year, with accounting effect from Jan. 1, 2021.
As of Oct. 21, US$1 was equivalent to 9.21 Norwegian kroner.