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January 07, 2019

ECB published a recommendation on the dividend distribution policies (ECB/2019/1) for credit institutions. Credit institutions should establish dividend policies using conservative and prudent assumptions, after any distribution, to satisfy the applicable capital requirements and the outcomes of the supervisory review and evaluation process (SREP).

With regard to credit institutions paying dividends in 2019 for the financial year 2018, ECB recommends the following:

  • Category 1. Credit institutions that satisfy the applicable capital requirements and have already reached their fully loaded ratios, as applicable, as at December 31, 2018 should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfill all requirements and outcomes of the SREP, even in the case of deteriorated economic and financial conditions.
  • Category 2. Credit institutions that satisfy the applicable capital requirements as at December 31, 2018, but have not reached their fully loaded ratios as, as applicable, as at December 31, 2018 should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all requirements and outcomes of SREP, even in case of deteriorated economic and financial conditions. Furthermore, they should, in principle, only pay out dividends to the extent that paragraph 1(d) of (ECB/2019/1) is also fulfilled and, at a minimum, a linear path toward the required fully loaded capital requirements—as referred to in paragraph 1(e) of (ECB/2019/1) and outcomes of the SREP—is secured.
  • Category 3. Credit institutions in breach of the requirements referred to in paragraph 1(a), (b) or (c) of (ECB/2019/1) should in principle not distribute any dividend.

Credit institutions that are not able to comply with this recommendation because they consider themselves legally required to pay out dividends should immediately contact their joint supervisory team. Credit institutions in categories 1, 2, and 3 are also expected to meet Pillar 2 guidance. If a credit institution operates or expects to operate below Pillar 2 guidance, it should immediately contact its joint supervisory team. ECB will review the reasons why the credit institution’s capital level has fallen, or is expected to fall, and will consider taking appropriate and proportionate institution-specific measures. In their dividend policy and capital management, institutions are also expected to take into account the potential impact on capital demand due to future changes in the EU’s legal, regulatory, and accounting frameworks. In the absence of specific information to the contrary, the future Pillar 2 requirements and Pillar 2 guidance used in capital planning are expected to be at least as high as the current levels.

 

Related Link: Recommendation (PDF)

Keywords: Europe, EU, Banking, Securities, Dividend Distribution, Capital Requirements, CET1, SREP, CRR, Pillar 2, ECB/2019/1, ECB

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