Finance

COVID-19: IMF Encourages Banks to Suspend Dividend Payments to Mitigate Risks

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  • COVID-19: IMF Encourages Banks to Suspend Dividend Payments to Mitigate Risks

The Managing Director, International Monetary Fund, Kristalina Georgieva, has advised commercial banks to suspend dividend payments in order to strengthen their financial positions as they struggle to ease the effects of COVID-19 on their finances and operations.

In an article titled ‘Halt bank dividends and buybacks now’ and published on the Fund’s website, Georgieva said suspending dividend payments would provide financial institutions with enough capital to better manage the adverse effects of the COVID-19 pandemic.

The IMF boss said, “As we brace ourselves for a deep recession in 2020, and only partial recovery in 2021, this resilience will be tested.

“Having in place strong capital and liquidity positions to support fresh credit will be essential.

“One of the steps needed to reinforce bank buffers is retaining earnings from ongoing operations.”

According to Georgieva, commercial banks spent $250 billion on dividends and buybacks in 2019, saying this amount can be used to curb the expected effects of the COVID-19 on the global financial system and speed up the recovery process.

“This year, they (banks) should retain earnings to build capital in the system,” Georgieva said.

While admitting that the suspension of dividend payments would hurt shareholders, including retail and small institutional investors, the IMF chief said sustaining earnings while strengthening business operations in the banking sector remains key to a speedy recovery.

“Nonetheless, in the face of the abrupt economic contraction, there is a strong case for further strengthening banks’ capital base,” she added.

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