LONDON (Reuters) – Banks are expected to curb bonuses to boost their ability to help businesses and households hit by the coronavirus crisis, the European Union executive said on Tuesday.
The European Commission has presented a new package of temporary ‘quick fixes’ offering capital relief that would support additional loans worth up to € 450 billion ($ 490 billion) to struggling businesses as they move forward. ‘a deep recession is looming.
“In the last crisis we had to support the banks, this time we are helping the banks to support households and businesses,” EU chief financial officer Valdis Dombrovskis said at a conference. hurry.
The relaxation of capital and accounting rules will be temporary, and the package must be approved by EU states and the European Parliament no later than June to have full effect, he said.
The EU executive backed statements by regulators that banks should refrain from paying dividends or repurchasing shares at a time when they are receiving capital relief.
“For banks, moderating the amount of bonuses paid to senior executives and high incomes in these difficult times is also a way of expressing their solidarity with those affected by the COVID-19 epidemic,” the Commission said.
Banks like UniCredit and Deutsche Bank have started reporting increased bad debt provisions as a deep recession looms after nationwide lockdowns to tackle the pandemic.
Tuesday’s package provides flexibility in how provisions are calculated and to delay their eventual impact on a bank’s capital cushion to prevent loans from turning into a trickle in the face of increased bad debts caused. by the pandemic.
The delays in repayment should not automatically lead to a more severe accounting treatment of the respective loans, the Commission said.
An EU official estimated eurozone banks could face an additional € 100 billion in loan provisioning in 2020, but capital relief on Tuesday means they will still be able to support additional loans worth up to 450 billion euros.
The European Commission has also proposed giving banks more leeway in how they calculate a measure of capital known as the leverage ratio, proposed easier treatment of small business loan capital, and speeded up a rule. which allows banks not to deduct the value of software from capital.
“These adjustments to the prudential framework would facilitate collective efforts to mitigate the impact of the pandemic and thus move towards a rapid recovery,” said the Commission.
In previous measures, EU regulators have said banks could use some of their capital buffers to keep lending to the economy, although some of the initiatives announced on Tuesday fall short of similar proposals made by banks. American regulators.
Reporting by Huw Jones; Editing by Alexander Smith, Kirsten Donovan