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ECB to let banks pay out 15% of profits if they prove they can afford it: sources

FILE PHOTO: A euro logo sculpture stands in front the headquarters of the European Central Bank in Frankfurt, Germany

FRANKFURT (Reuters) -The European Central Bank is likely to decide on Tuesday to let banks pay out up to 15% of their profits for 2019/20 to shareholders if they can convince supervisors they can afford to do so, easing a coronavirus crisis dividend ban, two sources told Reuters.

The ECB recommended in March that banks on its watch refrain from any dividend distribution this year so that they preserve capital for a wave of unpaid loans that could reach 1.4 trillion euros ($1.70 trillion) as a result of the coronavirus pandemic.

ECB supervisors meeting on Tuesday to review the matter were set to ease this restriction and vote on a proposal allowing lenders to pay out up to 15% of the profits they accumulated this year and the last, the sources said.

But one source cautioned that banks needed to show supervisors that they had enough capital to make such a payout, and decisions would be made on a case-by-case basis, meaning the burden will be on banks to prove their case and gain approval.

An ECB spokeswoman declined to comment.

The euro zone is still struggling under the second wave of the coronavirus pandemic and delinquencies are expected to rise in the coming months as some government support schemes are phased out and companies and households run out of savings.

But the prospect of a vaccine means that the outlook further out looks rosier, leading the ECB to expect the euro zone's economy to rebound by 3.9% next year and 4.2% in 2022.

Bankers have been complaining that the de facto ban on dividends was making it harder for them to attract investors and encroached on their legal rights.

The Bank of England set its own dividend cap for UK banks at 25% of cumulative 2019/20 profits last week.

($1 = 0.8243 euros)

(Reporting By Balazs Koranyi and Francesco Canepa)