JERUSALEM (Reuters) - Israeli banks should not resume dividend payments until at least the fourth quarter of 2021, the country’s banking regulator said on Sunday, citing uncertainty over the economy and people’s health. The directive comes as the Banking Supervision Department at the Bank of Israel said it planned to extend easier capital liquidity requirements until Sept. 30, adding that it expects banks “to use the capital surpluses to increase credit, and not for distributing dividends.” Yair Avidan, Israel’s banking supervisor, had said that Israeli banks may resume limited dividend payments in the second half of the year after overcoming a wave of loan deferments during the pandemic. In March last year the central bank halted dividends and share buybacks for a year, while lowering capital requirements at commercial banks by 1 percentage point to free up additional funds for banks to provide credit and absorb any loan losses. “The banking system in Israel is robust, and the banks benefit from surpluses of capital and liquidity,” the regulator said on Sunday. But despite a rapid COVID-19 vaccination programme that is expected to lift economic growth, “the risks inherent in banking system activity remain high in view of the risk of additional waves of morbidity and the uncertainty that are liable to lead to an adverse economic impact.” Through the first nine months of 2020, profit at Israel’s five main banking groups slid to a combined 4.9 billion shekels ($1.5 billion) from 8.6 billion in the same period in 2019. At the same time, provisions for loan losses soared to 7.3 billion shekels from 1.6 billion. Still, banks have been able to maintain a ratio of equity Tier 1 capital to risk components of 10-12%. The government has backed loans and the central bank has loaned banks funds at low rates to encourage credit to small businesses. Between 70% to 80% of those who deferred loans have begun to repay.