The European Central Bank has told banks not to pay any dividend payments until at least January and urged them to be “extremely moderate” when setting staff bonuses during the coronavirus pandemic.
The recommendations from the central bank seek to help banks absorb losses and support lending throughout the crisis, which has left practically all eurozone countries in negative territory.
Andrea Enria, chair of the ECB’s supervisory board, said: “The build-up of strong capital and liquidity buffers since the last financial crisis has enabled banks during this crisis to continue lending to households and businesses, and thereby to help stabilise the real economy. Therefore, it is all the more important to encourage banks to use their capital and liquidity buffers now to continue focusing on this overarching task: lending, whilst of course maintaining sound underwriting standards.”
The decision was reflected by the UK’s Prudential Regulation Authority.
European bank stocks have suffered massibely during the scecond quarter. The Stoxx Europe 600 Banks Index lost more than a third this year.
The ECB had issued a similar order back in March, where banks were directed to halt dividends at least until October. The ECB oversees the 117 largest banks in the eurozone.
The Financial Times reports that British banks — including HSBC, Standard Chartered, Lloyds and RBS — suffered share price drops after announcing they would cancel their 2019 dividend payments in March.
Last week UBS, which is regulated by the Swiss Financial Market Supervisory Authority, said it was considering using $3.6bn of capital reserves on a mix of cash dividends and share repurchases by the end of the year.