Restrictions on profit distribution at leasing companies

Having recently adopted a macroprudential measure restricting profit distributions by banks and savings banks, Banka Slovenije has issued a recommendation extending similar guidance to leasing companies. The epidemic crisis, which has hit Slovenia too, will have major economic consequences, which are certain to also have an impact on leasing companies. The purpose of the recommendation is ensuring that leasing companies retain the highest possible level of capitalisation. It is expected to be in place for one year.

It is hard to forecast how long the epidemic and the measures to curb its spread will last, or whether there will be repetitions, and thus it is necessary to ensure that leasing companies maintain the highest possible level of capitalisation. According to Banka Slovenije, the recommendation restricting profit distributions will help to maintain financial stability, and to prevent any disruption to the functioning of leasing companies.

The recommendation relates to leasing companies that generated at least EUR 1 million in new leasing business in 2019, where finance leasing accounted for at least 50% of the total new business, and whose total assets exceed EUR 10 million. It includes a temporary restriction on profit distributions to shareholders/members, the distribution of paid-up capital surplus related to capital instruments, retained earnings, accumulated other comprehensive income, other reserves and provisions, and the use of earnings for other purposes, e.g. bonuses for members of the senior management.

The recommendation is expected to be in place for one year. Banka Slovenije will nevertheless closely monitor the situation, and will tailor the recommendation as appropriate to any significant increase or decrease in risks.