Bank of Italy on Capital Distribution Policy and Definition of Default
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
FIN-FSA Amends Rules on Risk Reporting by Credit InstitutionsRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
