Restrictions on profit distribution at banks and savings banks

The Bank of Slovenia has adopted a macroprudential measure placing temporary restrictions on banks and savings banks in their profit distribution. The purpose of the measure is to retain capital so that the banking system is better able to withstand potential losses, and to continue supplying credit to businesses and households. The measure is expected to be in place for one year, although the Bank of Slovenia will closely monitor the situation, and will modify the measure as appropriate should the risks increase or decrease significantly.

The price paid by the Slovenian economy because of the outbreak of the coronavirus pandemic will be very high. How great the impact will be depends primarily on the duration of the measures to curb the spread of the virus and the pace of the recovery after the measures are relaxed. There will also be a major impact on the labour market, where the most obvious consequence of the situation will be a large rise in unemployment.

A situation where many people might remain jobless, which coupled with firms’ loss of revenue could see firms and consumers alike declining in creditworthiness, will have an adverse impact on credit risk in the banking system.

The ECB recommendation aimed at responding more effectively to the coronavirus crisis has been implemented across the Slovenian banking system by the Bank of Slovenia in the form of a binding measure.

We are introducing a macroprudential measure placing restrictions on banks and savings banks in their profit distribution. The purpose of the measure is to retain capital so that the banking system is better able to withstand the potential losses, and to continue supplying credit to businesses and households. Restricting profit distributions by banks is a reasonable, proportionate measure that will bring great benefits to the banking system and above all to the real sector amid the anticipated decline in economic activity.

The measure restricting profit distributions applies to the profits of banks and savings banks generated in 2019 and 2020, and to undistributed profits and reserves from previous years. It is expected to be in place for one year. The Bank of Slovenia will closely monitor the situation, and will respond to any significant increase or decrease in risks. The first assessment of the measure is planned for the end of this year.