The MFSA sets out its supervisory expectations on dividend distributions

The MFSA has recently published a Circular to explain the Authority's supervisory considerations and expectations when a distribution is proposed. While no additional regulatory requirements have been introduced, the Authority expects proactive engagement and timely communication in relation to dividend distribution decisions. 

Since the pandemic-era restrictions on dividend distributions and share buybacks were lifted, credit institutions must demonstrate that a distribution is consistent with prudent capital planning and sound risk management. Dividend distributions continue to be assessed case by case as part of the ongoing supervisory process. The Authority weighs the bank's capital position, risk appetite, governance, including any dividend policy in place, the resilience of capital planning. The assessment is therefore as much about the quality of the decision-making behind a proposal as about the ratios supporting it.  

While not mandatory, it is considered good practice for institutions to notify Banking Supervision of an intention to distribute in writing, within a reasonable timeframe, before the distribution. Notifications must be accompanied by the information and analysis underpinning the proposal, including the materials put to the Board and the further information presented to shareholders.   

The points below set out an indicative, non-exhaustive list of information to be provided for the assessment: 

The information above must be provided at both solo and consolidated levels. Where a dividend distribution is proposed at holding company level, the institution or holding company shall submit the same documentation requirements listed above from the financial holding company’s perspective, in cases where the financial profile of the institution and the holding company have material differences. 

If underlying assumptions, financial projections, or the capital position change materially during the assessment period, the institution is expected to inform the Authority immediately. Once a notification is received, the MFSA will either issue an acknowledgement letter or engage further and request additional information under Article 19(1)(b) of the Banking Act.