Investors in banks like HSBC were angered by the BoE's request for banks to suspend dividends.

But Alex Brazier said it stopped about 8 billion pounds leaving the sector at a time when the economy was going into lockdown to fight the pandemic, leading to a 20 billion pound surge in provisioning for bad loans with analysts anticipating a similar amount still to come.

"This is a dividend delayed rather than a dividend destroyed forever. It does not change the amount of distributions banks will make over the long run," Brazier told an online event held by the CSFI think tank.

"It does require a degree of patience from investors," he added.

The BoE regards payouts as an "important and necessary" part of the functioning of the banking system, and will undertake "very careful analysis" this quarter of banks' distribution plans, Brazier said.

The BoE did not know in March that banks would be able to deal with more severe stresses than the COVID-19 fallout which is now clearer, Brazier said.

This is something the BoE would now take into account when examining the banks' distribution plans, he added.

Britain's banks have been urged to tap their capital buffers to keep lending to the economy, but are leery of doing so to avoid raising market expectations of hefty cash calls.

Brazier said lenders should not be worried about facing a "steep path" to rebuilding buffers once the COVID-19 crisis has passed as this would not be consistent with still helping the economy recover.

"We need to take into account bank profitability and their ability to generate capital organically," he said.

(Reporting by Huw Jones; Editing by Alison Williams, Emelia Sithole-Matarise and Cynthia Osterman)

By Huw Jones