UK Markets open in 3 hrs 21 mins

Nine euro zone banks tap pandemic buffer due to 'structural issues', ECB says

Francesco Canepa
·2-min read

By Francesco Canepa

FRANKFURT (Reuters) - Nine euro zone banks ate into their capital buffers last year, but most likely due to issues not related to the coronavirus pandemic, the European Central Bank's chief supervisor Andrea Enria said on Thursday.

The ECB is allowing banks to use some of their regulatory capital cushions to absorb losses resulting from the COVID-19 outbreak until the end of 2022 so that they do not have to cut back lending to an already struggling economy.

But Enria said the nine banks, which had already tapped into these buffers, were likely to be doing so due to "structural issues" given that the impact of the pandemic had yet to feed through thanks to government moratoria and support schemes. He did not name the nine banks.

"Only a few banks have dipped into their capital buffers so far as credit losses from the pandemic are yet to materialise and this is likely to be the consequence of idiosyncratic and structural issues rather than COVID-19 downfall," Enria, presenting the ECB's annual review of banks, said.

Enria encouraged banks to use those buffers when losses do come through, rather than ignoring them to protect their capital level.

WATCH: What are the risks of investing in cryptocurrency?

The ECB has also recommended that banks pay out via dividends no more than 15% of their profits for 2019/20, or up to 20 basis points of the Common Equity Tier 1 (CET1) ratio, to preserve capital.

Enria said banks were complying with that dividend cap although some were still arguing about how it is calculated.

"With some of them we're still negotiating and discussing how the aggregate should be calculated and the like," Enria said.

He said the ECB expected euro zone banks to pay between 10.5 billion euros and 11 billion euros in dividends this year, narrowing a range he had communicated last month.

This would correspond to roughly one-third of their usual payouts.

The ECB said overall capital buffers remained "ample" but warned of the risk of a sudden surge in loans that go unpaid as government support measures for businesses, households and banks are lifted.

"Significant uncertainties remain...(and) data indicate an ongoing need for vigilance and continued supervisory challenges in several critical areas, relating in particular to the risk of a sudden increase in non-performing loans," the ECB said.

WATCH: What UK government COVID-19 support is available?

(Reporting By Francesco Canepa; Editing by Toby Chopra and Jane Merriman)