Information of the CNB on the distribution of profits for 2019 and 2020 by credit institutions
The Czech National Bank has in recent days sent a letter to individual credit institutions in which, given the persisting uncertainty about the economic impacts of the ongoing COVID-19 pandemic, it provides them with a framework for the payment of dividends from profits for 2019 and 2020. The Czech National Bank based the framework on the Recommendation of the European Systemic Risk Board of 15 December 2020 on restriction of distributions.
The starting point of this framework is the calculation of a quantitative upper limit on dividends from profits for 2019 and 2020, set according to a general formula prepared by the Czech National Bank. The Czech National Bank’s next step will be to individually assess each institution’s risk profile and business model and other fundamental factors assessed in the Supervisory Review and Evaluation Process (SREP). Following this assessment, the Czech National Bank may then further lower the dividend amount for specific institutions if necessary.
The Czech National Bank sets the lowest of the following four values as the initial maximum dividend amount:
- 100 basis points of the total risk-weighted assets as of 31 December 2020,
- 25% of the accumulated profit for 2019 and 2020,
- the amount after the payment of which the capital adequacy ratio would be 4 percentage points above the overall capital requirement (OCR),
- the amount after the payment of which the adjusted leverage ratio would be 7%. The adjusted leverage ratio is the leverage ratio arrived at when exposures to the Czech National Bank are excluded from the total exposure for the leverage ratio.
This quantitative limit not only enables the amount of profit generated and the maximum change in the capital ratio to be taken into account, but also factors in the capitalisation of individual institutions. The initial quantitative limit will be set only in relation to the final audited results of credit institutions for 2020.
The Czech National Bank will assess credit institutions’ proposed dividend payment amounts on an individual basis. When assessing the risk profile, the Czech National Bank will take into account the documents submitted by the institution for the SREP, including the internal capital adequacy and liquidity assessment carried out by the institution, its business, financial and capital plans, and stress test results. The Czech National Bank will focus on assessing the adequacy of the provisions created so far with respect to the impact of the coronavirus crisis, as well as on assessing the institution’s plan for making further additions to provisions. When assessing the institution’s risk profile and capitalisation, the Czech National Bank will also take into account the potential impact of planned or ongoing acquisitions and mergers and other changes in activities.
The Czech National Bank expects to be ready to inform credit institutions of its assessment of their proposed dividend payment amounts in the first quarter of 2021.
The Czech National Bank is convinced that this approach to profit distribution will not jeopardise the capitalisation of any individual credit institution and will simultaneously safeguard the capital stability of the banking sector as a whole.
Director of the Communications Division and CNB Spokesperson