Financial Supervisory Authority refines recommendation on refraining from dividend distributions
On 28 March 2020, the Financial Supervisory Authority (FIN-FSA) issued a supervision release in which it recommended that banks under its supervision refrain from dividend distributions until 1 October 2020. The FIN-FSA now refines its recommendation as follows:
- The FIN-FSA recommends that credit institutions do not pay or undertake to pay dividends or any other distribution of profit until 1 October 2020 for the financial years 2019 and 2020. Credit institutions should also refrain from repurchasing or redeeming shares or units for the purpose of distributing profits.
Proposals already made by boards of directors of credit institutions for the distribution of dividends for the 2019 financial year to a decision-making body (general meeting of shareholders, general meeting of a cooperative, meeting of trustees) may be maintained, but the proposals should be amended to postpone the dividend distribution to a date after 1 October 2020 and on the condition that an assessment has been made that the uncertainties caused by the COVID-19 pandemic have disappeared. Alternatively, a proposal can be made to transfer the profit for financial year 2019 to retained earnings and a commitment made to a possible distribution of reserves subject to the reassessment of the situation once the uncertainties caused by COVID-19 pandemic have disappeared (and, in any case, not before 1 October 2020).
If the credit institution decides on a distribution of dividends in line with a proposal of the board of directors but postpones the dividend payment, the amount of dividends proposed shall be deducted from the profit for financial year 2019 and from Common Equity Tier 1 capital (CET1). If, on the other hand, the credit institution decides to transfer the profit for financial year 2019 to retained earnings, the profit for the financial year can be included in CET1 in financial year 2020. If the uncertainties are later estimated to have disappeared and the credit institution distributes a dividend, the dividend distribution shall be deducted from CET1.
If the board of directors of the credit institution does not propose to amend the distribution of dividends or the dividend distribution policy, the planned distribution of dividends for financial year 2020 shall be handled in entirely the same way as provided for in Article 2(7) of Commission Delegated Regulation (EU) No 241/2014 for interim periods ending before or up until 30 September 2020. If the board of directors of the credit institution has made a dividend distribution proposal where a dividend is distributed only after 1 October 2020 on the condition that an assessment has been made that the uncertainties caused by the pandemic have disappeared, the credit institution may disregard the dividend distribution completely and refrain from excluding it from CET1 in the abovementioned interim periods when calculating the amount of profit to be included in CET1.
- A credit institution which is unable to comply with this recommendation due to a commitment already made, such as a decision of general meeting of shareholders, a general meeting of a cooperative or a meeting of trustees, but has not yet paid a dividend, should contact its assigned supervisor immediately and provide detailed reasons why considers that it cannot comply with this recommendation.
- This recommendation shall apply to credit institutions under the direct supervision of the FIN-FSA. The recommendation shall apply to a credit institution on the basis of its consolidated position. The recommendation shall also apply to a single credit institution when it does not belong to a consolidation group and is not the parent undertaking of a consolidation group. In accordance with the principles outlined above, credit institutions belonging to an amalgamation of deposit banks are encouraged to postpone payment of interest on non-voting and basic fund shares to beyond 1 October 2020 and to contact their assigned supervisor if necessary.
The European Central Bank has issued separate instructions to credit institutions under its direct supervision in a press release dated 27 March 2020.
The FIN-FSA will continue to assess the impact of the uncertainties caused by the COVID-19 pandemic on the state of the economy and the need for banks to continue to refrain from distributing dividends also beyond 1 October 2020.
In 17 March and 20 March, the FIN-FSA announced measures by which it will seek to support the ability of banks under its direct supervision to respond to the coronavirus situation and to continue funding households and businesses, see press releases 17 March on macroprudential decisions and 20 March ECB provides further supervisory flexibility. This recommendation follows on from these measures and the FIN-FSA expects banks’ shareholders to contribute to supporting the goals of the measures.
For further information, please contact
Jyri Helenius, Deputy Director General of the FIN-FSA, tel. +358 9 183 5312, and on the practical application of the recommendation Minna Sahari, Senior Legal Advisor, tel. +358 9 183 5319 or minna.sahari(at)fiva.fi
FIN-FSA supervision release 30 March 2020 -11/2020: FIN-FSA issues recommendation to supervised banks to refrain from dividend distributions – yesterday evening the ECB published a corresponding recommendation to banks under its direct supervision
ECB press release 27 March 2020: ECB asks banks not to pay dividends until at least October 2020
FIN-FSA press release 20 March 2020: ECB provides further supervisory flexibility – FIN-FSA: All flexibility will be channelled to alleviate the effects of the pandemic (in Finnish)
EBA release 25 March 2020: EBA provides clarity to banks and consumers on the application of the prudential framework in light of COVID-19 measures