Member of the ECB Supervisory Board suggests banks retain dividends to invest in technology
Pedro Machado argues that investment in artificial intelligence is critical and necessary for financial institutions, challenging banks to reflect on this.
Pedro Machado, member of the Supervisory Board of the European Central Bank (ECB), challenged banks on Wednesday to retain dividends to invest in technology, arguing that investment in artificial intelligence (AI) is critical and necessary for financial institutions.
“It is important for banks to assess whether, in terms of profit retention, the amounts being retained are sufficient for the levels of technological investment”, said Pedro Machado during the ‘Banking on Change’ conference, organised in Lisbon by ECO in partnership with the consulting firm KPMG.
In this regard, he invited the boards of directors and shareholders of banks “to reflect on the extent to which the retention of profits for investment corresponds to what is necessary for the digitalisation that is taking place in the financial system”.
The member of the ECB’s Supervisory Board pointed out that “banks are remunerating their shareholders and are not retaining these profits because they consider that there is no need to retain them for investment or to grant credit”.
Pedro Machado also pointed out that “investment in AI is critical and necessary for banks” and will require “scale and availability of financing”. “We asked banks if they are comfortable with the levels of investment they will need”, he revealed. “It should be noted that the need for investment in technology will be very high”, he added.
Ratios required of banks are not excessive
Pedro Machado does not consider the capital ratios required of banks by supervisors to be excessive. Rather, it is the market itself that demands this.
“Significant banks in the Eurozone are operating with CET1 capital ratios of around 16.2%. In other words, banks are operating with safety buffers that go well beyond the requirements of supervisors”, said the Portuguese national.
In his opinion, this is because “investors want banks to operate with ratios above those required by supervisors”. Therefore, the “issue of excessive ratios” is a discussion that does not correspond to reality.
