South Korea's financial watchdog said Thursday it has decided to advise local banks to reduce dividends this year to help them better cope with the impact of the coronavirus outbreak.

The decision, among other things, recommends lenders to keep their dividends below 20 percent of earnings, according to the Financial Services Commission (FSC).

But the recommendation doesn't apply to dividends that banks pay out to their holding companies. Two state lenders -- the Korea Development Bank and the Export-Import Bank of Korea -- will be exempt from it.

The FSC said the decision, made at its regular meeting Wednesday, is designed to help banks boost their ability to absorb potential losses from the prolonged coronavirus crisis.

Last year, major bank holding companies paid out 25 percent to 27 percent of their profits in dividends.

Since late last year, the watchdog had been discussing the matter with local lenders amid the growing fallout from the COVID-19 outbreak.

The FSC also said it has conducted a stress test of local banks, which shows local banks need to maintain their capital conservatively in case of a protracted coronavirus outbreak. (Yonhap)