Prudential Regulation Authority Rulebook

1.

The amount of foreseeable dividends to be deducted by institutions from the interim or year-end profits as provided in point (b) of Article 26(2) of the CRR, shall be determined in accordance with paragraphs 2 to 4.

2.

Where an institution’s management body has formally taken a decision or proposed a decision to the institution’s relevant body regarding the amount of dividends to be distributed, this amount shall be deducted from the corresponding interim or year-end profits.

3.

Where interim dividends are paid, the residual amount of interim profit resulting from the calculation laid down in paragraph 2 which is to be added to Common Equity Tier 1 items shall be reduced, taking into account the rules laid down in paragraphs 2 and 4, by the amount of any foreseeable dividend which can be expected to be paid out from that residual interim profit with the final dividends for the full business year.

4.

Before the management body has formally taken a decision or proposed a decision to the relevant body on the distribution of dividends, the amount of foreseeable dividends to be deducted by institutions from the interim or year-end profits shall equal the amount of interim or year-end profits multiplied by the dividend payout ratio.

5.

The dividend pay-out ratio shall be determined on the basis of the dividend policy approved for the relevant period by the management body or other relevant body.

6.

Where the dividend policy contains a pay-out range instead of a fixed value, the upper end of the range is to be used for the purpose of paragraph 2.

7.

In the absence of an approved dividend policy, or when it is likely that the institution will not apply its dividend policy or this policy is not a prudent basis upon which to determine the amount of deduction, the dividend pay-out ratio shall be based on the highest of the following:

1. (a) the average dividend pay-out ratio over the three years prior to the year under consideration; or
2. (b) the dividend pay-out ratio of the year preceding the year under consideration.

8.

Institutions may adjust the calculation of the dividend pay-out ratio as described in points (a) and (b) of paragraph 7 to exclude exceptional dividends provided that it notifies the PRA of its intention to do so.

9.

The amount of foreseeable dividends to be deducted shall be determined taking into account any regulatory restrictions on distributions, in particular restrictions determined in accordance with the Capital Buffers Part of the PRA Rulebook. The amount of profit after deduction of foreseeable charges subject to such restrictions may be included fully in Common Equity Tier 1 items where the condition of point (a) of paragraph 2 of Article 26 of the CRR is met. When such restrictions are applicable, the foreseeable dividends to be deducted shall be based on the capital conservation plan which has been notified to the PRA in accordance with Chapter 4 of the Capital Buffers Part of the PRA Rulebook and which the institution is implementing.

10.

The amount of foreseeable dividends to be paid in a form that does not reduce the amount of Common Equity Tier 1 items, such as dividends in the form of shares, known as scrip-dividends, shall not be deducted from interim or year-end profits to be included in Common Equity Tier 1 items.

11.

All necessary deductions to the interim or year-end profits and all those related to foreseeable dividends shall be made, either under the applicable accounting framework or under any other adjustments, before including the interim or year-end profits in Common Equity Tier 1 items.

[Note: This rule corresponds to Article 2 of Part 2 of Regulation (EU) No 241/2014 as it applied immediately before revocation by the PRA.]