The Banks Association of Turkey published a public announcement (”Announcement”) on January 29, 2021 regarding an assessment by the Banking Regulatory and Supervisory Authority (”BRSA”) on banks’ dividend distributions.
The BRSA recommended that banks with a core capital adequacy below 12% not distribute dividends in respect of the financial year 2018. Also, the BRSA requested that banks do not make dividend distributions in a manner that would cause cash outflow in respect of the financial year 2019.
As to the financial year 2020, The BRSA stated that it would be advisable for banks not to distribute dividends generated in financial year 2020 or from reserves generated prior to 2020 but that were not distributed and kept as equity in order to avoid cash outflow. Aside from these, the BRSA allowed the banks to distribute dividends up to 10% of the net profit for the year of 2020.
According to the Announcement, banks can distribute dividends subject to the abovementioned proportional limitation considering the bank-specific conditions, especially the capital adequacy ratio and the precautionary principle.
In 2020, general precautions were taken within the scope of the coronavirus pandemic, such as limiting the distribution of dividends as per the temporary article added to the Turkish Commercial Code (please see our client alert here) and extending the application period of the limitation (please see our client alert here).
The BRSA’s approach envisages a sector-specific regime regarding dividend distributions. The Announcement shows that, unlike its approach to the profits for the financial years 2018 and 2019, the BRSA has adopted a flexible approach to dividend distributions.