Virus crisis: ECB tells banks not to pay dividends until January 2021

FRANKFURT AM MAIN: The European Central Bank on Tuesday urged banks to refrain from paying dividends or offering bonuses until January 1, 2021, in order to ensure lenders have sufficient buffers to survive the economic storm unleashed by the coronavirus crisis.

The recommendation, which extends a previous call to halt such payments until at least October 2020, "remains temporary and exceptional", the ECB said in a statement. The aim is to preserve "banks' capacity to absorb losses and support lending to the real economy" at a time of "exceptional uncertainty".

The ECB has taken unprecedented action to cushion the economic impact from the pandemic, launching a 1.3 trillion-euro emergency bond-buying scheme to stimulate growth and keep borrowing costs low. It has also offered ultra-cheap loans to banks and eased rules on capital buffers to keep credit flowing in the eurozone.

But the Frankfurt institution has repeatedly made clear it expects lenders to make their own extraordinary efforts as well. In a letter to euro area banks, the ECB's chief supervisor Andrea Enria said the central bank was paying "close attention" to lenders' remuneration policies during the crisis.

As well as the dividend freeze, the ECB urged lenders not to buy back shares for the time being, another tool to reward shareholders.

The ECB also expects lenders to show "extreme moderation" in deciding the variable component of bankers' salaries, Enria said. "The reputational impact of the payment of variable remuneration in a global crisis situation should not be underestimated," he wrote.