Extension and adjustment of measure restricting profit distribution by banks and savings banks

Banka Slovenije has extended and adjusted the macroprudential measure temporarily restricting profit distributions by banks and savings banks during the adverse conditions brought about by the coronavirus epidemic. That measure will apply until the end of this September. The measure remains binding in the part that relates to payment of profits in the form of dividends, share buybacks or the use of profits for other purposes, with certain exceptions permitted. Banka Slovenije has amended the part relating to restrictions on the payment of variable remuneration to defined groups of employees, making it a recommendation. In this way, we are following the recommendations of the ESRB, ECB and the Financial Stability Board, while taking into account the specifics of the Slovenian banking system.

Economic and financial uncertainty due to the coronavirus epidemic, which was the reason for the adoption of the measures last year, lingers. Recommendations were therefore adopted at the level of the ESRB and ECB last December, extending restrictions on profit distributions at banks, with certain exceptions, due to lingering uncertainty in the majority of EU Member States. We adopted a similar recommendation at the end of January in the scope of the Slovenian Financial Stability Board.

With the aim of implementing the recommendations in the Slovenian banking system, Banka Slovenije today extended the measure restricting profit distributions by banks and savings banks. “The purpose of our measure is to retain capital in the banking system in the current conditions so that the banking system is better able to withstand the consequences of the crisis, and to continue supplying credit to businesses and households,” emphasised Banka Slovenije. Restricting profit distributions by banks brings great benefits to the banking system and above all to the real sector.

Banka Slovenije has decided to maintain as binding the part of the measure that relates to payment of profits in the form of dividends, share buybacks or the use of profits for other purposes. Following the example of European institutions, we will permit an exception under the condition that a bank’s cumulative profit in the first quarter of 2021 is positive. To that end, profit distributions shall not exceed the lower of the following criteria: 15% of a bank’s cumulative profit on an individual basis from the 2019 and 2020 financial years, or 0.2% of a bank’s common equity Tier 1 capital ratio on an individual basis according to the situation as at the end of 2020.

The part relating to restrictions on the payment of variable remuneration to defined groups of employees has been changed to a recommendation, whereby a commercial bank or savings bank must provide Banka Slovenije prior notification of such payment.

The measure is published in the Official Gazette of the Republic of Slovenia in the form of a regulation and will apply until the end of this September.