In an executive circular, the National Bank of Hungary (MNB) instructed credit institutions not to pay dividend or take on irrevocable dividend payment obligations until 31 December 2021 on results of financial years 2019 and 2020 and previous years. Limited dividend payments may be made, however, if strict conditions are met.
In March 2020, the Financial Stability Board (PST) of the National Bank of Hungary (MNB) adopted a comprehensive package of measures for credit institutions, issued in an executive circular, to ease the negative impact of the coronavirus pandemic.
It set out, inter alia, the requirement that no dividend should be approved or paid to shareholders of the financial institutions concerned until the end of September 2020.
Based on the decisions made by the PST on 10 September 2020, 28 December 2020 and 8 January 2021, in order to maintain the shock resilience of the financial system, the central bank subsequently issued revised executive circulars deciding that no dividend shall be paid and no irrevocable dividend payment obligation shall be taken on for financial years 2019 and 2020 or any previous year until 1 January 2021 and then until 30 September 2021.
MNB recently revised its executive circular again.
In an amendment to this, the central bank extended the restrictions on dividend payments, share repurchases and performance compensations until 31 December 2021. The financial institutions concerned may be exempted from the restriction on the payment of dividend only under strict conditions. They have the opportunity to do so if their post-payment tier 1 capital adequacy ratio decreases only minimally, their capital buffer remains at the expected level, they do not have an impairment deficit and their business prospects are adequate based on information submitted to and revised by MNB.
In the executive circular, the central bank also calls on credit institutions to refrain from repurchasing shares for the purpose of remunerating shareholders until 31 December 2021 (treasury shares reacquired for remuneration purposes are not included in this category).
In addition, until the end of this year, institutions should consider limiting performance-based pay to persons covered by their remuneration policy. If this restriction cannot be implemented, MNB expects a higher proportion of such payments to be postponed (even for a longer period if necessary). Payments made by credit institutions not exceeding 0.2 percent of own funds calculated on an annual basis shall be exempt from these restrictions.
The central bank says the decision was made because of the extension of the Hungarian loan repayment moratorium until 30 September 2021 and the possibility that it will be extended further.
MNB considers the stability of financial intermediary institutions to be important in the context of the coronavirus epidemic. It will continue monitoring the risks and the impact of the coronavirus on the financial system.