July 22, 2020 / 1:13 PM / 12 days ago

ECB to extend capital relief, dividend ban for banks - sources

FILE PHOTO: A man cycles towards the European Central Bank (ECB) headquarters in Frankfurt, Germany, July 8, 2020. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) - The European Central Bank is set to grant euro zone banks further relief from its capital requirements and renew a recommendation not to pay dividends amid a severe recession, ECB sources told Reuters.

With the euro zone economy struggling under the weight of the coronavirus pandemic and associated lockdown measures, the ECB told banks in March to suspend discretionary payments such as dividends and bonuses until October, while allowing them to eat into their capital and liquidity buffers.

Both measures are set to be officially extended on Tuesday, when the ECB will also publish the results of its vulnerability assessment - an exercise estimating how euro zone banks would, on aggregate, cope with the pandemic, three sources said.

This is because supervisors fear a new wave of unpaid loans in the coming months, as some government guarantees and measures aimed at protecting households and firms expire, as well as a potential second wave of the COVID-19 pandemic.

An ECB spokesperson declined to comment.

Bloomberg had reported earlier that ECB supervisors were leaning towards extending the dividend ban.

Reporting by Francesco Canepa and Balazs Koranyi; Editing by Mark Heinrich

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