LONDON (REUTERS) - Banks should be "conservative" in how they award bonuses to preserve capital and keep lending to an economy hit by the Covid-19 pandemic, the European Union's banking watchdog said on Tuesday (March 31).

The European Banking Authority (EBA) stopped short of calling on banks to stop bonuses altogether.

"Remuneration and, in particular, its variable portion should be set at a conservative level," EBA said in a statement.

"To achieve an appropriate alignment with risks stemming from the Covid-19 pandemic a larger part of the variable remuneration could be deferred for a longer period and a larger proportion could be paid out in equity instruments."

It builds on an order last Friday from the European Central Bank, which supervises leading euro zone lenders, telling lenders to stop paying dividends and making share buybacks until at least October, estimating they could save €30 billion (S$46 billion).

Euro zone banks like UniCredit, ABN Amro and Commerzbank have already said they were scrapping dividends, with analysts now anticipating that the Bank of England will adopt a similar stance to the ECB.

EBA said that relief given to banks so far should be used to finance companies and households and not to increase dividends or undertake share buybacks to fill pockets of shareholders.

Banks should consult their regulator if they consider themselves legally required to pay-out dividends or make share buybacks, EBA said.

To ease the regulatory burden on banks so they can focus on helping customers stay afloat, the EBA also said they can have an extra month for submitting routine data on capital and risks which normally takes place between March and May.

The watchdog will also ditch this year's study on the impact of global capital and liquidity requirements on lenders in the bloc.