Single Rulebook Q&A

Table of Contents

Question ID Date of publication

2018_3821 18/01/2019 12:01

Question ID: 2018_3821

Status
Final Q&A

Legal act
Regulation (EU) No 575/2013 (CRR) as amended

Topic
Own funds

Article
26

Paragraph
2

Subparagraph

COM Delegated or Implementing Acts/RTS/ITS/GLs

Regulation (EU) No 241/2014 - RTS for Own Funds requirements for institutions

Article/Paragraph
Articles 2 and 3

Date of submission
26/04/2018 13:02

Published as Final Q&A

18/01/2019 12:01

Type of submitter
Competent authority

Subject matter
Inclusion of interim profits in CET1
European Banking Authority, 31/03/2019
eba.europa.eu
 Single Rulebook Q&A

Question

Could interim profits, which are not profits from the recent reporting period but from the previous one, be
included in CET1 capital before the institution has taken a formal decision confirming the final profit or loss
of the institution for the year on the basis of Article 26(2) CRR?

Background on the question

Example: An institution included in CET1 capital 25% of its interim profits from Q1 in April and 25% of its
interim profits from Q2 in July. Each time an institution fulfilled requirements from points (a) and (b) of
Article 26(2) and obtained competent authority's permission for including interim profits in CET1 capital (in
both cases an institution applied for 25% of interim profits from a relevant quarter to be included in CET1
and permissions were granted).

In October, an institution decided it would like to include another 25% of its profits from Q1 and 25% of its
profits from Q2 (50% of Q1-Q2 profits in total) without taking decision about profits from Q3 yet (Q3
profits may be still not calculated or not audited). The dividend pay-out ratio specified in dividend policy is
50%. Given that application is considered in October, would it be possible for an institution to apply to
include Q1 and Q2 profits only (Q3 profits may be still not calculated or not audited). Issue is more
pronounced in a local translation of the CRR as the 'interim profits are translated as a 'current period profits'.

EBA answer

On the basis of Article 26(2) of Regulation (EU) No 575/2013 (CRR) an institution may include interim
profits in CET1 capital before it has taken a formal decision confirming the final profit or loss of the
institution for the year only with the competent authority's prior permission, and subject to the conditions set
out in a) that those profits have been verified by persons independent of the institutions that are responsible
for the auditing of the accounts of that institution and b) the institution has demonstrated to the satisfaction
of the competent authority the deduction of any foreseeable charge or dividend from the amount of those
profits. Additional conditions are included in Articles 2 and 3 of Regulation (EU) No 241/2014 - RTS for
Own Funds requirements for institutions.

If all abovementioned conditions are met, the institution from the example above, will be able to include the
additional interim profits from Q1 and Q2 into CET1 capital, even if its Q3 profits may still not be
calculated or audited. In case of losses occurring in Q3, such losses would be immediately deducted from
CET1 capital on the basis of Article 36(1)(a) CRR.

European Banking Authority, 31/03/2019

eba.europa.eu
 Single Rulebook Q&A

Link
EBA website link

European Banking Authority, 31/03/2019

eba.europa.eu