ECB lifts Covid-era curbs on banks’ dividends

FRANKFURT: The European Central Bank said Friday it would end pandemic-era restrictions on banks’ payouts to shareholders but urged eurozone lenders to “remain prudent”.

The ECB “decided not to extend beyond September 2021 its recommendation that all banks limit dividends”, it said in a statement.

But it warned that eurozone lenders “should remain prudent when deciding on dividends and share buy-backs”.

The ECB imposed a cap on banks’ rewards to shareholders at the onset of the coronavirus crisis in March 2020, to ensure lenders had enough liquidity to weather the fallout.

The curbs were then extended twice, until September 2021.

With the eurozone recovery now firmly under way thanks to mass vaccinations and post-lockdown reopenings, the Frankfurt institution said it would return to the “pre-pandemic way of assessing” banks’ plans for dividends and share buy-backs. But it urged banks to keep a cushion to cope with further fallout from the pandemic, including potential bankruptcies.

Banks should “not underestimate the risk that additional losses may later have an impact on their capital trajectory as support measures expire”, the ECB said.

ECB President Christine Lagarde warned on Thursday of growing economic uncertainty caused by the fast-spreading Delta variant of the virus.

The ECB has taken unprecedented action to help the 19-nation currency club through the pandemic, launching a 1.85 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 to households and businesses.

But the Frankfurt institution made clear it wanted lenders to make their own extraordinary efforts as well.

The US Federal Reserve and the Bank of England have also recently lifted their Covid-era restrictions on dividends after banks proved they had successfully weathered the changing economic circumstances.

Experts say eurozone banks are sitting on billions of euros they intend to pay out to shareholders.