KYIV, April 6 – The National Bank of Ukraine asked the country’s banks to suspend dividend payments to shareholders until October to maintain liquidity amid massive challenges to the financial system from unfolding coronavirus pandemic.

The development is the latest sign of stress threatening the banking system as major parts of the economy, such as steel, mining and logistics, have been disrupted by the COVID-19 pandemic spreading world-wide.

"The National Bank, like other leading central banks of the world, considers it essential that the banks preserve capital to support the economy amid the spread of economic problems caused by the coronavirus pandemic,” the NBU said in a statement. “Therefore, banks are advised to refrain from distributing profits on dividend payments at least until October.”

The government last month declared the situation of emergency and ordered the nation-wide quarantine that will last through April 24 amid rising number of coronavirus cases and deaths in the country.

The developments challenge the banking system to the extent of stress tests that had been conducted by the central bank over the past several years, indicating that additional measures will be required to preserve substantial capital reserves to cover possible losses over the next six months.

"The financial institutions must preserve capital reserves to support lending activities, in particular, many businesses will have an increased need for working capital during quarantine and during the period of gradual recovery of economic activity," the NBU said.

The NBU said the banks must focus on ensuring sufficient capitalization to cover all existing and future significant risks, adding that the temporary waiver of dividends distribution will strengthen the financial stability of banks.

Kateryna Rozhkova, the first deputy governor of the NBU, said the banks are currently well capitalized, have sufficient liquidity and will be able to handle the short-term challenges caused by the crisis.

"Now, the Ukrainian banks are sufficiently capitalized and liquid. The banks are ready to support the Ukrainian economy during this crisis time,” Rozhkova said. “We look forward that the management and shareholders of financial institutions to join the collective efforts to counter COVID-19 spread and temporarily refrain from distributing revenue.”

“This will increase the ability of banks to cover losses and continue lending to the people, SMEs and large businesses during the crisis," Rozhkova said. (tl/ez)