EU Banks Can Survive Virus, ECB’s De Guindos Says

Most of the European Union’s banks are strong enough to survive the impact of the coronavirus crisis, according to European Central Bank Vice President Luis de Guindos.

“In a few days’ time, the ECB will be publishing the outcome of its vulnerability analysis of banks, which is a substitute for the stress tests,” De Guindos said in an interview with the Spanish news website El Independiente. “There is every indication that, with this high level of solvency, most European banks could withstand a 9% fall in GDP and survive the two years it will take to return to the level of output seen before the spread of Covid-19.”

Still, banks should be “extremely prudent” when distributing dividends, according to De Guindos, who noted that the average capital ratio of European lenders is around 15%. The ECB recommendation to suspend dividend payments is geared toward preventing a credit crunch, he said.

“Bank profits should not be used to pay dividends, but to further support lending,” De Guindos said.

The ECB is leaning toward extending a request to banks to restrain payouts until at least the end of the year, as several members of the supervisory board don’t see enough clarity on the economy to justify returning to dividend payments, Bloomberg News reported July 22.

©2020 Bloomberg L.P.

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