The CNB commented on the payment of dividends by banks: The aggregate amount of dividends for 2019 and 2020 may amount to approximately 15% of the banking sector’s profit

In recent weeks, the Czech National Bank has completed an assessment of the capital situation of individual banks and commented on their intentions to pay dividends from profits for 2019 and 2020. For the next period, the CNB will no longer limit bank dividends results for 2021. Patria Finance analyst Michal Křikava published a sector analysis at the beginning of this week, covering Erste, Komerční banka and Moneta. For all three, Patria Finance increased its target price based on performance in the first half of the year. Dividends are a key attraction for shareholders in all three titles.

REPORT: Banks in CEE – Better target prices after a stronger half-year (Erste, Komerční banka, Moneta)

The withholding of dividend payments from the profits of 2019 and 2020 was part of anti-crisis measures. This was to mitigate the negative impact of large-scale economic closures during the COVID-19 pandemic on banks’ finances and to maintain their capital adequacy in times of uncertainty in order to maintain the stability of the domestic banking sector.

Formula for calculating dividend payments for the last two years communicated by the CNB to the banks in March 2021. According to this framework, the maximum amount of dividends was determined on the basis of four indicators, with the CNB announcing that it would assess specific banks’ proposals and comment on them during the third quarter of 2021.

The CNB completed this assessment of the capital situation and risk profiles of individual banks – based on all available information, including their economic results for the first half of this year – in recent weeks. Based on it, it provided banks with comments on their intentions according to the established framework for the distribution of profits for 2019 and 2020. The aggregate amount of dividends may be approximately 15% of the banking sector’s profit for these two years.

At the same time, the CNB informed the banks that the amount of dividends in the next period would no longer be limited by the above indicators and that proposals for profit distribution would be assessed through a standard supervisory process.

An important input into this process will continue to be information on the current risk profile and capital situation of banks, including the results of stress tests conducted by the CNB, which verify the resilience of institutions to possible unfavorable economic scenarios. Banks’ capital projections will also be assessed in terms of their ability and manner to meet the minimum capital requirements and eligible liabilities (MREL, which is part of a package designed to prevent the impact of further financial crises on public budgets).

The CNB expects that banks will continue to approach the distribution of profits conservatively in order to maintain a safe level of their capital adequacy. At the same time, she advised banks to consider further dividend payments only after they have the final financial results for 2021 and are aware of the effects of the pandemic in the autumn and winter months.

(Source: CNB, Patria, Reuters)

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