ECB asks lenders to hold off on dividend payments

The European Central Bank asked lenders to hold off on paying dividends until next year to conserve their financial strength as the coronavirus pandemic ravages the economy.

The supervisor is also asking banks not to buy back shares until January, and “to be extremely moderate with regard to variable remuneration”, according to a statement Tuesday. Bloomberg reported last week that the ECB was leaning toward asking banks to hold off on dividends at least through the end of the year.

The ECB first asked banks in March to not make dividend payments at least until October, in an effort to conserve capital as lockdowns to combat the pandemic wreaked havoc on the economy. While the move was painful for some lenders and their investors, the central bank indicated it was a trade-off for unprecedented regulatory relief it had granted them to weather the crisis.

Banks including BNP Paribas have since been lobbying to resume dividend payments as they seek to shore up slumping share prices, Bloomberg reported. A historic trading rally, regulatory relief, and extensive government loan guarantees have bolstered earnings at several banks. Switzerland's UBS Group indicated last week that it may return more capital to shareholders toward the end of the year.

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The central bank says its dividend request kept about €30 billion of capital in the euro-area banking system to absorb losses and lend to companies hit by the fallout from the coronavirus pandemic. It has urged banks to comply on a voluntary basis, although its chief watchdog has said the ECB can take “legally binding measures” if the lenders don’t do as asked. – Bloomberg