Macroprudential restriction on banks' profit distribution

With the aim of increasing the resilience of the financial system to financial shocks, maintaining financial stability, preventing disruptions to the financial system and reducing the build-up of systemic risks from the Covid-19 epidemic, the Bank of Slovenia has introduced a temporary restriction on profit distributions by banks and savings banks established in Slovenia (hereinafter: banks).

The purpose of the measure is to retain capital at banks so that the Slovenian banking system is better able to withstand potential losses, and to continue supplying credit to businesses and households. The macroprudential measure pursues an intermediate objective of macroprudential policy, namely to limit the systemic impact of misaligned incentives with a view to reducing moral hazard.

The Governing Board of the Bank of Slovenia adopted a Regulation on the macroprudential restriction of profit distributions by banks (Official Gazette of the Republic of Slovenia, No. 49/20) on the basis of Article 13 and the first paragraph of Article 31 of the Bank of Slovenia Act (Official Gazette of the Republic of Slovenia, No. 72/06 [official consolidated version], 59/11 and 55/17), Article 4, Article 17 and point 16 of the first paragraph of Article 19 of the Macroprudential Supervision of the Financial System Act (Official Gazette of the Republic of Slovenia, No. 100/13), and Recommendation OFS/2020/1 of 6 April 2020.

The Regulation on the macroprudential restriction on banks’ profit distribution shall include a temporary prohibition on:

  1. the payment of cash dividends;
  2. payments in connection with Common Equity Tier 1 capital, which include;
  • the full or partial payment of the variable component of remuneration in the form of the shares or other capital instruments set out in point (a) of the first paragraph of Article 26 of Regulation (EU) No 575/2013,
  • the redemption or purchase of own shares or other capital instruments set out in point (a) of the first paragraph of Article 26 of Regulation (EU) No 575/2013,
  • the payment of the capital instruments set out in point (a) of the first paragraph of Article 26 of Regulation (EU) No 575/2013, and
  • the distribution of the items set out in points (b) to (e) of the first paragraph of Article 26 of Regulation (EU) No 575/2013;
  1. payments in connection with Additional Tier 1 capital;
  2. the payment of the variable component of remuneration or the establishment of obligations for the payment of the variable component of remuneration or discretionary pension benefits for staff whose professional activities have a material impact on the risk profile of a bank (defined employees) as set out in Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile;
  3. the use of distributable profit for the purposes set out in the sixth paragraph of Article 230 of the Companies Act (Official Gazette of the Republic of Slovenia, Nos 65/09 [official consolidated version], 33/11, 91/11, 32/12, 57/12, 44/13 [Constitutional Court ruling], 82/13, 55/15, 15/17 and 22/19 [ZPosS]; hereinafter: the ZGD-1); and
  4. the payment of interim dividends in accordance with Article 232 of the ZGD-1.

Notwithstanding the above, banks shall not assume any irrevocable commitments for the payment of dividends for the 2019 and 2020 financial years. 

The macroprudential measure of the restriction of profit distributions by banks shall apply to the profits of banks and savings banks generated in 2019 and 2020, and to undistributed profits and reserves from previous years, and is effective for one year from its publication in the Official Gazette. Banka of Slovenia may rescind the measure early if the risks decline significantly, or extend the measure in the event of increasing risks.