New recommendation by FIN-FSA on distribution of credit institutions’ profits
The FIN-FSA recommends that credit institutions under its direct supervision exercise extreme prudence in profit distribution paid in cash until 30 September 2021. The recommendation also applies to buy-backs and redemptions of shares in circumstances where the purpose of such buy-backs and redemptions would be the distribution of profits. This recommendation supersedes the recommendation issued on 28 July 2020 (Supervision release 29 July 2020 – 46/2020). The recommendation applies to credit institutions on their highest consolidation level.
Decision-making on profit distribution by credit institutions under the FIN-FSA’s direct supervision must be based on realistic assessments of their ability to maintain a sound capital base. Such decisions must take into account the effects of the uncertain economic conditions on the credit institutions’ risk exposures and capital.
The decision is based on a Recommendation issued by the European Central Bank on 15 December 2020, in which it recommends credit institutions under its direct supervision to exercise extreme prudence in their profit distribution for financial periods 2019–2020 until 30 September 2021. The FIN-FSA recommends that when credit institutions define what constitutes prudent profit distribution, they apply comparable criteria to those presented by the ECB in its Recommendation to credit institutions under its direct supervision. According to the ECB’s criteria, profit distribution by credit institutions should be limited to:
- no more than 15% of the credit institution’s accumulated profit for the financial years 2019 and 2020; and
- no more than 0.2 percentage points of the credit institution’s CET1 ratio.
The ECB Recommendation applies to credit institutions under direct ECB supervision. The ECB recommends that national supervisory authorities also apply a similar recommendation to other credit institutions, to the extent they deem appropriate.
The FIN-FSA also recommends that credit institutions under its supervision exercise great moderation in deciding on variable remuneration in circumstances where remuneration could lead to an impairment in the credit institution’s prudential position. The ECB has also presented a corresponding recommendation to the Chief Executive Officers of credit institutions under its supervision in a letter dated 15 December 2020.
The European Banking Authority (EBA) has also issued a statement on 15 December 2020 calling for a conservative approach on profit distribution and to apply extreme caution therein.
See also
- ECB Recommendation on profit distribution of 15 December 2020
- ECB Letter to CEOs of 15 December 2020
- ECB press release of 15 December 2020
- EBA press release of 15 December 2020
Previous supervision releases aimed at credit institution under direct FIN-FSA supervision:
- Supervision release of 28 July 2020 – 46/2020
- Supervision release of 30 March 2020 – 12/2020
- Supervision release of 28 March 2020 – 11/2020
Previous FIN-FSA press releases on the recommendation concerning profit distribution
- Press release of 28 March 2020:FIN-FSA issues recommendation to supervised banks to refrain from dividend distributions - yesterday evening the ECB published a corresponding recommendation to banks under its direct supervision
- Press release of 28 July 2020: Financial Supervisory Authority extends the validity of its profit distribution recommendation until 1 January 2021 and clarifies expectations related to capital and liquidity buffers
Keywords
Contacts
For further information, please contact:
Jyri Helenius, Deputy Director General of the FIN-FSA. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030 (weekdays 9.00–16.00), and after office hours Milka Lahnalammi-Vesivalo, Head of Communications, tel. +358 9 183 5222.
About Finanssivalvonta
Finanssivalvonta on rahoitus- ja vakuutusvalvontaviranomainen, jonka valvottavia ovat muun muassa pankit, vakuutus- ja eläkeyhtiöt sekä muut vakuutusalalla toimivat, sijoituspalveluyritykset, rahastoyhtiöt ja pörssi. Edistämme finanssimarkkinoiden vakautta ja luottamusta sekä asiakkaiden, sijoittajien ja vakuutettujen suojaa.
Subscribe to releases from Finanssivalvonta
Subscribe to all the latest releases from Finanssivalvonta by registering your e-mail address below. You can unsubscribe at any time.
Latest releases from Finanssivalvonta
Room for development remains in UCITS liquidity management8.4.2021 10:50:00 EEST | Press release
The Financial Supervisory Authority (FIN-FSA) considers that there remains room for improvement in procedures related to UCITS liquidity management. Management companies are responsible for ensuring an adequate level of liquidity risk management for UCITS, both in normal and extraordinary market conditions. The purpose of liquidity management is to ensure that the fund is able to pay, at a predetermined date, redemption orders made by investors to the fund. Finnish UCITS, however, did not experience significant shortcomings in their liquidity during the market conditions caused by the coronavirus pandemic in spring 2020.
Placeringsfondernas likviditetshantering behöver ännu utvecklas8.4.2021 10:50:00 EEST | Tiedote
Finansinspektionen bedömer att förfarandena i anslutning till placeringsfondernas likviditetshantering ytterligare behöver förbättras. Fondbolagen ansvarar för att placeringsfondernas likviditetsrisk-hantering är på tillräcklig nivå både under normala förhållanden och i exceptionella marknadslägen. Syftet med likviditetshanteringen är att säkerställa att fonden kan sköta de inlösningsorder som investerarna i fonden begär vid en på förhand utlovad tidpunkt. Finansinspektionen observerade emellertid inte några betydande brister i de finländska fondernas likviditet i det marknadsläge som orsakades av coronapandemin på våren 2020.
Sijoitusrahastojen likviditeetinhallinnassa vielä kehitettävää8.4.2021 10:50:00 EEST | Tiedote
Finanssivalvonta arvioi, että sijoitusrahastojen likviditeetinhallintaan liittyvissä menettelytavoissa on vielä parannettavaa. Rahastoyhtiöiden vastuulla on, että sijoitusrahastojen likviditeettiriskin hallinta on riittävällä tasolla sekä tavanomaisissa että poikkeuksellisissa markkinatilanteissa. Likviditeetinhallinnan tarkoituksena on varmistaa, että rahasto voi maksaa sijoittajille rahastoon tehdyt lunastuspyynnöt ennalta luvattuna hetkenä. Suomalaisilla rahastoilla ei kuitenkaan ilmennyt merkittäviä puutteita likviditeetissä keväällä 2020 koronapandemian aiheuttamassa markkinatilanteessa.
Macroprudential decision: FIN-FSA will not tighten macroprudential requirements but will closely monitor mortgage lending18.3.2021 15:15:00 EET | Press release
The Financial Supervisory Authority (FIN-FSA) is closely monitoring the housing market and household indebtedness and urges banks to take particular care when assessing borrowers’ ability to pay, especially in the case of large and long-term loans. For now, the maximum loan-to-collateral (LTC) ratio, i.e. the loan cap, and banks’ capital requirements will remain unchanged.
Makrotillsynsbeslut: Finansinspektionen skärper inte makrotillsynskraven men följer noga utvecklingen inom bostadsutlåningen18.3.2021 15:15:00 EET | Tiedote
Finansinspektionen följer noga utvecklingen på bostadsmarknaden och i hushållens skuldsättning och uppmanar bankerna att göra en särskilt noggrann bedömning av låntagarnas betalningsförmåga i synnerhet vid stora lån och lån med en lång återbetalningstid. I nuläget hålls den maximala belåningsgraden, dvs. lånetaket, och bankernas buffertkrav oförändrade.
Makrovakauspäätös: Finanssivalvonta ei kiristä makrovakausvaatimuksia mutta seuraa tarkasti asuntoluotonannon kehitystä18.3.2021 15:15:00 EET | Tiedote
Finanssivalvonta seuraa tarkasti asuntomarkkinoiden ja kotitalouksien velkaantumisen kehittymistä sekä kehottaa pankkeja lainanottajan maksukyvyn erityisen huolelliseen arviointiin etenkin suurten ja pitkien lainojen kohdalla. Tässä vaiheessa enimmäisluototussuhde eli ns. lainakatto ja pankkien pääomavaatimukset säilyvät ennallaan.
Finnish financial sector remained stable in 2020 - Risks in the operating environment mean continued uncertainty in the sector16.3.2021 10:00:00 EET | Press release
The Finnish financial sector coped well in 2020. In 2021, preparedness will still be required due to the uncertainty surrounding the economic outlook, pricing on the financial markets and the continuation of support measures. The capital position of the Finnish financial sector, however, provides a good basis for coping with risks.
In our pressroom you can read all our latest releases, find our press contacts, images, documents and other relevant information about us.
Visit our pressroom