Polish Financial Supervision Authority's recommendation on dividend policy for 2019
On 3 December 2019 the PFSA took a stand on the dividend policy of commercial banks. The PFSA recommends that only those banks that meet all the criteria specified below should distribute dividend from their 2019 profits:
- those that do not pursue the recovery plan;
- are positively assessed under the supervisory review and evaluation process (SREP) – final SREP grade no lower than 2.5;
- with a leverage ratio (LR) higher than 5%;
- with Tier 1 ratio (CET1) no lower than the required minimum: 4.5% + 56%*add-on + combined buffer requirement;
- with Tier 1 ratio (T1) no lower than the required minimum: 6% + 75%*add-on + combined buffer requirement;
- with total capital ratio (TCR) no lower than the required minimum: 8% + add-on + combined buffer requirement.
The PFSA recommends that the banks that simultaneously meet all of the above criteria pay out up to 50% of the profit earned in 2019. Moreover, the PFSA recommended that the following payments are possible:
- up to 75% of the profit earned in 2019 by banks, which meet all the above criteria, taking into account an additional buffer of 1.5 p.p. as part of the capital criteria;
- up to 100% of the profit earned in 2019 by banks, which meet all the above criteria, taking into account the bank’s sensitivity to an unfavourable macroeconomic scenario, as part of the capital criteria.
Additionally, the PFSA indicated that the banks exposed to foreign currency loans should adjust the rate of dividend distribution based on two additional criteria:
- Criterion 1- based on the share of currency housing loans for households in the entire portfolio of receivables from the non-financial sector:
o banks with a share exceeding 10% – adjustment of the dividend rate by 20 p.p.
o banks with a share exceeding 20% – adjustment of the dividend rate by 30 p.p.
o banks with a share exceeding 30% – adjustment of the dividend rate by 50 p.p. - Criterion 2 – based on the share of foreign currency housing loans granted in 2007 and 2008 in the foreign currency housing loans for households portfolio:
o banks with a share exceeding 20% – adjustment of the dividend rate by 30 p.p.
o banks with a share exceeding 50% – adjustment of the dividend rate by 50 p.p.
whereas the total value of the adjustment is the total of the adjustments resulting from both criteria.
The above criteria should be met by banks both at the separate and at the consolidated level.
At the same time, in the case of distribution of prior year profits, banks should take into account Art. 77 and 78 of CRR and Art. 129 of the Banking Law. The PFSA expects banks to obtain approval to decrease own capital by undistributed profits from the prvious years devoted to dividend. Bank considers that fulfils CRR criteria that define the conditions of granting such approval by PFSA.
The level of capital ratios to be observed by the Bank in the distribution of up to 100% out of the profit earned as stated by the PFSA is as follows:
- at the consolidated level:
- Core Tier 1 capital ratio (CET1) = 12.69%
- Tier 1 capital ratio T1 = 14.26%
- total capital ratio TCR = 16.35% - at the separate level:
- Core Tier 1 capital ratio (CET1) = 12.75%
- Tier 1 capital ratio T1 = 14.32%
- total capital ratio TCR = 16.42%
As at 31 December 2019 the ratios amounted to:
- at the consolidated level:
- Tier 1 capital ratio T1 and basic capital ratio T1 (CET1) = 17.16%
- total capital ratio TCR = 18.42%
- Criterion 1 = 10.51%
- Criterion 2 = 45.15% - at the separate level:
- Tier 1 capital ratio T1 and basic capital ratio T1 (CET1) = 19.21%
- total capital ratio TCR = 20.66%
- Criterion 1 = 13.09%
- Criterion 2 = 45.53%
After accounting for adjustments to the dividend ratio by Criteria 1 and 2, according to the data as at 31 December 2019 the Bank meets the requirements as to the distribution of dividend up to 50% of the net profit for 2019.
The dividend policy of PKO Bank Polski S.A.
The aim of the dividend policy is the optimization of the capital structure of the Bank and the Group of the Bank, having considered the return on capital and the cost of capital, the capital needs for development, while ensuring an appropriate level of the capital adequacy ratios. The dividend policy assumes stable payments of dividends in the long term perspective, with respect to the principle of prudent management of the Bank and the Group as well as the possibility of realization of payments out of capital excess over the minimum capital adequacy ratios resulting from the generally applicable legal and regulatory requirements as well as the minimum level of Tier 1 at the level of 14.62%, as specified by the Polish Financial Supervision Authority for the purpose of the payment of the dividend by the Bank. The regulatory requirements should be considered also as the PFSA’s, as the competent authority, position regarding the dividend policy for financial institutions, including the Bank.
The dividend policy takes into account factors related to the activity of the Bank and the Group subsidiaries, in particular the supervisory requirements and recommendations with regard to capital adequacy.
Source: Current reports of PKO Bank Polski S.A.
*) Net profit for distribution includes the Bank's net profit for the year 2014 (PLN 3 079 471 000) and unappropriated profits (PLN 132 793 000)
**) Net profit for distribution includes the Bank's net profit for the year 2013 (PLN 3 233 762 000) and unappropriated loss of previous years (PLN -271 242 000)
***) Net profit for distribution includes the Bank's net profit for the year 2012 (PLN 3 592 617 000) and unappropriated profits (PLN 88 533 000)
