Bank of Italy has recommended the less significant banks under its supervision to refrain from, or limiting, dividend payouts until September 30, 2021; the recommended limit for dividend payouts is no more than 15% of the accumulated profit for the financial years 2019 and 2020, or no more than 20 basis points in terms of the common equity tier 1 ratio, whichever is lower. Bank of Italy also recommended banks to refrain from deciding on or paying out provisional dividends in relation to profit for 2021 and to exercise extreme prudence in calculating variable remuneration. This is in line with the ECB recommendation on dividend distribution during COVID-19 pandemic. In addition, Bank of Italy announced that the new definition of default provided for by the European regulation on prudential requirements for credit institutions and investment firms (refers to the Capital Requirements Regulation) will enter into force from January 01, 2021.
The definition of default concerns the way in which individual banks and financial intermediaries must classify clients for prudential purposes—that is for calculating the mandatory minimum capital requirements for banks and financial intermediaries. The new definition of default does not substantially change the reports to the Central Credit Register, used by intermediaries in the process of assessing the "creditworthiness" of customers. The new definition of default may have repercussions on credit relationships between intermediaries and their customers, whose management, as in all situations of default, may involve the adoption of initiatives to ensure the regularization of the credit relationship. According to the new definition, a default shall be deemed to have occurred when the amount of the arrears exceeds both the following limits for more than 90 consecutive days:
- EUR 100 for retail exposures and EUR 500 for exposures other than retail (absolute threshold)
- 1% of the overall exposure to a counterparty (relative threshold)
Related Links (in English and Italian)
- Press Release on Dividend Distribution (PDF in English)
- Press Release on Definition of Default (PDF)
- Additional Information on Definition
- Q&A on Definition of Default
Keywords: Europe, Italy, Banking, CRR, COVID-19, Dividend Distribution, Definition of Default, Credit Risk, Regulatory Capital, Basel, ECB, Bank of Italy
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleFIN-FSA Amends Rules on Risk Reporting by Credit Institutions
FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.
ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate.
BIS and BoE launched the BIS Innovation Hub Center in London, which is the fourth new Innovation Hub Centre to be opened in the past two years.
ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden.
SEC announced that the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions.
EC published the Delegated Regulation 2021/931, which supplements the Capital Requirements Regulation (CRR or Regulation 575/2013) with regard to the regulatory technical standards specifying the method for identifying derivative transactions with one or more than one material risk driver.
BCBS is consulting on preliminary proposals for the prudential treatment of cryptoasset exposures of banks.
EBA issued a revised list of validation rules under the implementing technical standards on supervisory reporting.
BIS Innovation Hub, BDF, and SNB announced that, together with a private-sector consortium led by Accenture, they will conduct an experiment using wholesale central bank digital currency (wCBDC) for cross-border settlement.
ESAs published two amended implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs).