PRA issues statement on capital distributions

In July, the PRA announced its intention to undertake an assessment of large UK banks’ distribution plans for 2020. The PRA has now completed that assessment and, noting that economic uncertainty as a result of Covid-19 and the UK’s future relationship with the EU remains high, has found that banks remain well capitalised and are expected to be able to continue to support the real economy through this period of disruption.

The PRA has stressed that it is for bank boards to determine the appropriate level of shareholder distributions for 2020, noting that all distributions should be prudent, reflecting current levels of uncertainty and the need for banks to continue to support households and businesses through the present economic disruption. The PRA has asked boards, when making decisions for 2020 distributions, to operate within a framework of temporary guardrails:

  • Distributions to ordinary shareholders should not exceed the higher of:
    • 20 basis points of risk weighted assets as at end-2020; or
    • 25% of cumulative eight-quarter profits covering 2019 and 2020 after deducting prior shareholder distributions over that period.

The PRA has also updated its expectations on the payment of cash bonuses to senior staff and has said it will scrutinise proposed pay-outs closely to ensure large banks have applied the PRA’s rigorous remuneration regime in an appropriate manner.

Lucy Hadrill