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IMF: German banks shouldn't pay dividends, do share buy-backs during pandemic

BERLIN, Nov 18 (Reuters) - The International Monetary Fund (IMF) has urged German bank supervisors to tell private lenders like Deutsche Bank and Commerzbank to refrain from paying dividends and doing share buybacks during the COVID-19 pandemic.

“The German banking sector is likely to take a significant hit to profits and capital but remains broadly resilient under the baseline economic outlook,” the IMF said in the concluding remarks of its Germany report published on Wednesday.

The Washington-based international organisation said the COVID-19 recession was exposing banks to rising default risk and lower revenues. But existing capital buffers and the temporary relaxation of regulatory capital requirements would help cushion the impact on bank solvency, it added.

As businesses and households will need time to recover, bank capital buffers should be rebuilt gradually, minimising disruptions to the supply of new loans, the IMF suggested.

“Bank supervisors should maintain guidance to banks to refrain from discretionary dividend distributions and share buybacks until the full impact of the pandemic becomes clearer,” the IMF said.

The Fund repeated its advice that German supervisors should continue encouraging banks to tackle the long-standing issue of low profitability by restructuring business, improving non-interest revenues and reducing administrative costs. (Reporting by Michael Nienaber Editing by Michelle Adair)