LONDON (Reuters) – The Bank of England will assess whether to extend a suspension on payouts such as dividends and share buybacks by banks beyond the end of the year due to the COVID-19 pandemic, it said on Tuesday.
Under pressure from the central bank, Britain’s lenders agreed in March to suspend payouts this year in order to preserve capital to help companies and households hit by COVID-19 lockdowns. Bonuses to senior staff were also scrapped.
The Bank of England (BoE) said on Tuesday its Prudential Regulation Authority (PRA) would undertake in the fourth quarter an assessment of distribution plans at banks beyond the end of 2020.
“The assessment will be based on the current and projected capital positions of the banks and will take into account the level of uncertainty about the future path of the economy, market conditions and capital trajectories prevailing at that time,” the BoE said in a statement.
Britain’s lenders are due to publish second quarter earnings that are expected to show more hefty provisions for loans hit by fallout from the pandemic.
The BoE said payouts were an important and necessary part of the functioning of the banking system, but that suspending them was a “sensible precautionary step given the unique role of banks in supporting the wider economy through the period of economic disruption”.
Separately on Tuesday, the European Central Bank said it had extended until January 2021 its recommendation to euro zone lenders not to pay dividends.
The BoE said it noted the ECB’s announcement.