Featured Product

    CNB Communicates on Profit Distribution Framework Amid Pandemic

    March 18, 2021

    CNB published a communication that sets out the framework for distribution of profits for 2019 and 2020 by credit institutions. The starting point of this framework is the calculation of the quantitative limit for the maximum amount of dividends from profits achieved in 2019 and 2020, determined according to a general formula prepared by CNB. The next follow-up step of CNB will be the individual evaluation of the institution's risk profile, business model, and other significant factors assessed in the review and evaluation process. Following this evaluation, CNB may further reduce the resulting dividend amount for specific institutions.

    CNB recently sent a letter to individual credit institutions in which, due to the continuing uncertainty about the economic impact of the ongoing COVID-19 pandemic, it provided them with a framework for paying dividends on 2019 and 2020 profits. As part of the framework, CNB sets the lowest of the following four values as the initial maximum amount of dividends:

    • 100 basis points of total risk-weighted assets as at December 31, 2020
    • 25% of the cumulative profit for 2019 and 2020
    • the amount of funds after which the capital adequacy would be 4 percentage points above the total capital requirement
    • the volume of funds after which the adjusted leverage ratio would be 7%; the adjusted leverage ratio is the leverage ratio, where exposures for CNB are excluded from the total exposure for the leverage ratio

    The quantitative limit set in this way makes it possible not only to consider the volume of profits generated and the maximum change in the capital ratio, but also to consider the capital adequacy of individual institutions. The initial quantitative limit will be set only in relation to the final audited results of credit institutions for 2020. CNB will individually assess the proposals of credit institutions regarding the amount of dividends. In assessing the risk profile, CNB will consider the documents submitted by the institution for the Supervisory Review and Evaluation Process, or SREP, including the internal assessment of the institution's capital adequacy and liquidity; business, financial, and capital plans; and the results of stress tests. CNB will focus on evaluating the adequacy of the amount of provisions created so far due to the impact of the COVID-19 crisis and on evaluating the institution's plan for further provisioning. In assessing the institution's risk profile and capital adequacy, CNB will also consider the potential impact of planned or ongoing acquisitions and mergers and other changes in operations.

    CNB expects to be prepared to communicate to individual credit institutions about the evaluation of their proposals for the payment of dividends during the third quarter of 2021. CNB is convinced that the chosen method of approach to profit distribution will not endanger the capital adequacy of any individual credit institution and will ensure the capital stability of the entire banking sector.

     

    Related Link (in Czech): Press Release

     

    Keywords: Europe, Czech Republic, COVID-19, Dividend Distribution, Credit Risk, Regulatory Capital, Leverage Ratio, Financial Stability, Basel, CNB

    Featured Experts
    Related Articles
    News

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News
    News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News
    News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582