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The European Central Bank on Tuesday extended its recommendation to banks not to pay dividends or buy back shares until 1 January 2021, urging them to be "extremely moderate" with regard to variable remuneration.
Banks will be given enough time to replenish their capital and liquidity buffers in order to act pro-cyclically, under what the ECB called "temporary and exceptional" measures aimed at preserving banks' capacity to absorb losses and support the economy in the exceptionally uncertain environment. The ECB will review its position in the Q4 2020.
The ECB also announced that, due to the "operational resilience" shown by the banking sector throughout the Covid-19 crisis, it does not plan to extend the six month operational relief measures it granted to banks in March 2020, with the exception of non-performing loan (NPL) reduction strategies for high-NPL banks.
However, it will grant high-NPL banks an extra six months in which to submit their reduction plans, in order to provide them with additional time to more accurately estimate the impact of the Covid-19 pandemic on asset quality.