European banks are expected to return more than 120 billion euros to shareholders from their 2023 results, transferring to investors the benefits they gained from the aggressive increase in interest rates.

Indeed, as emphasized by the Financial Times, the largest listed European banks have committed to dividends of 74 billion euros and share buybacks totaling 47 billion euros. According to data compiled by UBS, these represent a 54% increase compared to the capital returns of the previous year and are much higher than any year since 2007.

In Greece, the discussions between the four systemic groups and the system supervisor regarding the distribution of dividends from last year’s profits are reaching their final stages, with favorable terms. These talks, preceding their annual general meetings of shareholders next summer, will mark the first capital return to shareholders after 16 years.

Market anticipation already suggests approval from the Single Supervisory Mechanism (SSM). Banking sources indicate that the assessment of the request for dividend payouts will adhere to the three conditions outlined by the SSM for granting approval, as follows:

Greek banks must assure regulators of their ability to maintain profitability despite declining interest rates in the eurozone, which will reduce income from existing loans. They plan to offset this through increased lending and reduced loan repayments. Additionally, they aim to boost fee income through expanded asset management and bancassurance programs.

Secondly the SSM evaluates banks’ capital strength, which affects their ability to return capital to shareholders. Greek groups strategically issued bonds at the beginning of the year, raising 1.8 billion euros to improve capital ratios and move closer to meeting the 2026 MREL target.

Lastly, the supervisor scrutinizes banks’ loan portfolio quality. The domestic sector has significantly reduced delinquency rates from around 50% in 2016 to below 5%, targeting further reduction to below 3% in the next two years. Management must assure the supervisor that credit risk remains low and the likelihood of a reversal in downward trends is minimal under current conditions.