The European Central Bank (ECB) has asked banks in the region not pay out dividends to shareholders until at least October 2020. 

The recommendation was issued by the ECB last Friday to "boost banks' capacity to absorb losses and support lending to households, small businesses and corporates during the coronavirus (COVID-19) pandemic."

This recommendation would not retroactively cancel any dividends already paid out this year. But banks are asked to scratch any dividend proposals that may have been put forth for vote at upcoming shareholders meetings. The ECB is also requesting that European banks avoid offering share buybacks until October for the same reasons.

The EU flag.

Image source: Getty Images

Several banks have already announced plans to comply, including Commerzbank, Rabobank, ING Group, ABN AMRO, and KBC Group. KBC also cancelled a proposed share buyback program. Other banks in Europe are expected to meet in the coming days to discuss the matter and likely follow suit.

"In view of the Corona pandemic our priority is to support our customers," said Martin Zielke, chairman of the board at Commerzbank. "We have strong capital buffers and a comfortable liquidity position that are above all regulatory requirements. Nevertheless, given the uncertainties surrounding the coronavirus pandemic, it makes sense to follow the ECB's recommendation and suspend dividend payments for the time being."

This request does not affect U.S.-based banks. None of the major U.S. banks have postponed their dividends, but the eight largest banks agreed to suspend share buyback programs through the second quarter

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