Recommendation of the ECB on dividend distribution policies

30 December 2015

Based on the European Central Bank recommendation, credit institutions should establish dividend policies using conservative and prudent assumptions in order, after any distribution, to satisfy the applicable capital requirements.

(a) Credit institutions are required to satisfy the applicable minimum capital requirements (‘Pillar 1 requirements’) at all times. This includes a Common Equity Tier 1 capital ratio of 4,5 %, a Tier 1 capital ratio of 6 % and a total capital ratio of 8 % as provided for by Article 92 of Regulation (EU) No 575/2013.

(b) Moreover, credit institutions are required to satisfy at all times the capital requirements that are imposed as a result of the applicable Decision on the Supervisory Review and Evaluation Process in application of Article 16(2)(a) of Regulation (EU) No 1024/2013 and which go beyond the Pillar 1 requirements (‘Pillar 2 requirements’).

(c) Credit institutions are also required to satisfy the countercyclical capital and systemic buffers as referred to in Article 128(2), (3), (4) and (5) of Directive 2013/36/EU, and all other buffers adopted by national competent and designated authorities.

(d) Credit institutions are also required to satisfy their required ‘fully loaded’ (1) Common Equity Tier 1 capital ratio, their Tier 1 capital ratio and their total capital ratio by the applicable full phase-in date. This refers to the full application of the abovementioned ratios after application of the transitional provisions, as well as that of the countercyclical capital buffer and the systemic buffers referred to in Article 128(2), (3), (4) and (5) of Directive 2013/36/EU, and all other buffers adopted by national competent and designated authorities. The transitional provisions are set out in Title XI of Directive 2013/36/EU and in Part Ten of Regulation (EU) No 575/2013.

These requirements are to be met both on a consolidated level and on an individual basis unless the application of prudential requirements has been waived on an individual basis, as provided for in Articles 7 and 10 of Regulation (EU) No 575/2013.

With regard to credit institutions paying dividends (2) in 2016 for the financial year 2015, the ECB recommends that:

• Category 1: Credit institutions that satisfy the applicable capital requirements as referred to in paragraph 1(a), (b) and (c), and which have already reached their fully loaded ratios as referred to in paragraph 1(d) as at 31 December 2015, should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all requirements even in the case of deteriorated economic and financial conditions;
• Category 2: Credit institutions that satisfy the applicable capital requirements as referred to in paragraph 1(a), (b) and (c) as at 31 December 2015 but have not reached their fully loaded ratios as referred to paragraph 1(d) as at 31 December 2015 should distribute their net profits in dividends in a conservative manner to enable them to continue to fulfil all requirements, even in the case of deteriorated economic and financial conditions. In addition, they should in principle only pay-out dividends to the extent that, at a minimum, a linear (3) path towards the required fully loaded capital requirements as referred to in paragraph 1(d) is secured;
• Category 3: Credit institutions in breach of the requirements referred to in paragraph 1(a), (b) or (c) should in principle not distribute any dividend.

Full recommendation

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