Frankfurt, Dec. 16, (dpa/GNA) – Eurozone banks should hold off on or minimize dividends through at least September 30 to make sure their finances stay strong, in case the coronavirus pandemic still has surprises to spring on the economy, the European Central Bank said on Tuesday.
“Even with the improvement in macroeconomic conditions and the reduction of economic uncertainty due to the Covid-19 pandemic since March 2020, the level of uncertainty remains elevated with a continued impact on banks’ ability to forecast their medium-term capital needs,” read a letter sent to banks.
Nevertheless, the new guidance is a loosening from recommendations earlier this year which called on banks to issue no dividends whatsoever this year.
“In revising its recommendation, the ECB acknowledges the reduced uncertainty in macroeconomic projections,” read a statement.
By asking banks to forgo giving out dividends, the central bank hopes the chances will be higher that banks will have resources to make loans should companies run into financial trouble due to the pandemic, which has forced most customers to stay indoors.
Although the economy looks better of late, the ECB noted that massive government financial support and the fact that some problems only make themselves known with a delay means that it is too early to assume that the troubles have passed.
Even as the ECB sent the letter, multiple European economies were preparing to head back into stricter lockdowns, including Germany, the eurozone’s economic powerhouse.
It set guidelines for dividends and urged banks intending dividends or share buybacks to make sure they were profitable before pursuing such steps.
Banks that go ahead with such programmes need to check with regulators, it noted.
However, many banks have built up reserves this year and argue that the only way to retain strong investments is to pass on some kind of dividend.
GNA