An institution may request prior permission to include interim or year-end profits in CET1 capital by submitting a request to that effect to de Nederlandsche Bank (DNB). The institution must submit this request no later than 28 calendar days after the reporting reference date. DNB will then decide within 35 calendar days after the reporting reference date whether interim profits are permitted to be included in CET 1. This should give the institution sufficient time to submit its CRD-based reporting in line with DNB’s decision (institutions are required to report approximately 42 calendar days after the reporting reference date).
In line with article CRR.26.2 institutions are only allowed to include interim or year-end profits in CET1 capital, if the following three conditions are met:
- those interim or year-end profits are verified (at least reviewed, hence a comfort letter is not allowed) by the external auditor (CRR.26.2.a);
- any foreseeable charges or dividends are deducted from those interim or year-end profits (CRR.26.2.b); and
- the competent authority (DNB) has granted prior permission to include interim or year-end profits (CRR.26.2.last sub paragraph)
- The interim or year-end profits must be established at the applicable level of consolidation relevant for reporting by the reporting institution, consistent with the prudential scope of consolidation.
- Interim or year-end profits are determined based on an the accounting rules. Application of accounting rules in this respect means that interim profits should be calculated on an accumulated year-to-date basis from the beginning of the fiscal year up and until the reporting reference date. The results are hence determined on a cumulative basis for:
- Q1 to Q3
- year-end before the institution has taken a formal decision confirming final profit or loss
- If the interim or year-end result is an interim or year-end loss, this should always be deducted from CET1 capital, in line with CRR.36.1.a
- The EBA shall develop draft regulatory technical standards to specify the meaning of any foreseeable charges or dividends (CRR.26.4)
- Interim or year-end profits for which prior permission has been received shall be reported in the CoRep CA 1 template on line 150 (i.e. 18.104.22.168.2.)
- Interim or year-end profits presented by the institution for any purpose, including public (pillar III) disclosure, shall reflect the decision of the competent authority on the inclusion of those profits. Verification by the auditor is expected to be at least equivalent to a review engagement; further EBA guidance / interpretation is expected on this issue.
- Refer for further details to the EBA Q&A 2013_384 & 2014_1242