(Adds loan amount renegotiated)
BRASILIA/SAO PAULO, April 6 (Reuters) - Brazil’s central bank has barred financial institutions from paying dividends beyond the minimum legal requirement through Sept. 30 and initiating new share buyback programs, in a move to strengthen liquidity amid the coronavirus pandemic.
The central bank, the industry’s main regulator, said the change is designed to give banks the flexibility to keep extending credit and absorb potential future losses as the outbreak hits Latin America’s largest economy.
Banks are also forbidden to raise executive compensation or create new share repurchase programs without consulting the central bank. Authorized share buyback programs are restricted to 5% of outstanding shares.
The European Central Bank (ECB) took similar measures last month, asking banks to skip dividend payments and share buybacks and use their profits instead to support the economy. Spain’s Banco Santander SA last week canceled its dividend payments.
Brazil’s top five lenders have so far renegotiated more than 200 billion reais in loans for more than 2 million consumers and small companies, bank association Febraban said on Monday. Lenders are allowing customers to postpone debt payments for two to three months.
Febraban added that foreign banks have cut funding lines to Brazilian banks during the coronavirus pandemic, a move that has reduced the financial system’s liquidity.
Still, analysts at Goldman Sachs said the industry looked solid for the most part.
“We think the banks are well-prepared to withstand the crisis, given strong capital and coverage ratios, and extensive experience in dealing with crises,” they said in a note to clients.
Bank shares were outperforming a generally strong Brazilian stock market on Monday, with Itau Unibanco Holding SA up 8.8% and Banco Bradesco SA up 11% after Goldman Sachs upgraded them both with a buy recommendation. (Reporting by Marcela Ayres and Carolina Mandl, Writing by Tatiana Bautzer Editing by Paul Simao)