JERUSALEM (Reuters) - Israel's banking regulator on Sunday extended until the end of the year a temporary provision allowing banks to resume paying dividends as the country recovers from the COVID-19 crisis.

In a statement, the Bank of Israel maintained its advisory to cap dividends at 30% of 2020 and 2021 profits, saying a higher figure at this time would "not be considered prudent and conservative capital setting".

At the start of the global pandemic last year, the central bank instructed lenders to suspend dividend distribution and share buy-backs. It gave the go-ahead two months ago for limited dividend payments to resume.

Announcing a three-month extension of the dividends policy through Dec. 31, the bank noted "the increasing trend of recovery from the COVID-19 crisis" and the "soundness" of Israel's banking system.

But it said discussions on dividend distributions should still take into account "the level of uncertainty regarding the continuation of the COVID-19 crisis and its future economic implications".