The banking sector reported a record profit of BGN 3.7 billion for 2024, but 2023's peak of BGN 1.1 billion in dividends distributed would not fall. That, at least, is what the plans of the country's biggest financial institutions suggest before their annual shareholder meetings, where this is decided. There is not a full picture at this stage, but based on policy in previous years and the filings so far, it seems only about 20% of profits, or about BGN 750 million, will be distributed to shareholders, and 80% will be capitalised to underpin continued credit growth.
The plans of the Big 3
DSK Bank is among those that regularly distribute a dividend and for the second year running it will give the largest amount. It will amount to 50% of profits, but as this is slightly lower than the 2023 figure, in nominal terms this would mean BGN 488 million. The amount of the dividend is not specified in the invitation to the general meeting, but DSK CEO Tamas Hak-Kovac told Capital that the management's proposal is precisely to capitalize half of the profit so that it can secure its expansion.
Looking back, the total dividends distributed by the bank to its Hungarian owner OTP since 2014 reached BGN 2.85 billion, with the only interruption of two years when the National Bank (BNB) banned banks from distributing dividends due to the pandemic. However, this number is a bit misleading, as over the years there have been transfers in the opposite direction - for example, in the acquisition of Societe Generale Expressbank, DSK's capital was increased by around 600 million euro.
The leader in terms of assets - UBB, has not yet convened a general meeting, but according to unofficial information of Capital, its Belgian owner KBC intends to bet on a similar strategy - distribution of 50% of the profit, which makes about BGN 248 million. Thus, UBB returns to dividend distribution after a two-year hiatus. It has been much less regular in this respect, mostly because of a series of acquisitions and mergers over the years.
A curious moment is that Unicredit Bulbank, which distributed 65% of its profits a year ago, this year paused and will capitalize nearly BGN 950 million. Its result is stronger than last year's, helped by an extraordinary dividend from its consumer credit subsidiary - in addition to its 2023 profit, it is transferring BGN 108 million of retained earnings from previous years to the bank.
A possible explanation for the need to conserve more capital for the bank is the European Central Bank's (ECB) tightening requirements for internal capital adequacy models, such as Unicredit Bulbank uses. Most other Bulgarian banks have opted for a standardised approach. "Recent years have seen a strengthening of capital requirements, driven by regulatory changes aimed at further strengthening the financial sector. In addition, upcoming regulatory adjustments in 2025 (e.g. the introduction of Basel IV) require us to maintain a prudent approach to capital management," the bank told Capital.
They further explained their decision by placing priority on ensuring continuous and strong support for the Bulgarian economy and its sustainable growth. "In 2025, we remain committed to creating opportunities for growth and to continuing to support investment and thus the development of the local economy in a challenging economic environment. We remain committed to delivering returns to our shareholders while maintaining the financial stability needed to support our customers and the wider economy," their statement added.
Between the desirable and the possible
In general, there are not many banks with a regular dividend policy in Bulgaria, and there are reasons for this. Most large players are part of international groups where capital allocation among divisions is managed centrally. Therefore, how much dividend to distribute depends in no small part on what the needs are in the various markets of the parent bank and on its own dividend distribution policy. For example, it is not uncommon for a bank to distribute a dividend but receive an injection of subordinated term debt or other equity in the same year.
In general, for banks that are part of international groups, there is always an option to be backed by additional capital from head office if needed, so that they can also afford to hold less buffer to cover unforeseen losses.
For smaller players with local ownership, on the other hand, accumulated profits are often the only available source of capital and they keep this resource. Often BNB as a regulator is also reluctant to allow them to distribute dividends. Therefore, dividends are rather rare for them. In recent years, only Bulgarian-American Credit Bank and D Bank have received the green light from BNB for dividends. However, they are relatively small in size compared to the average.
With the dividends planned by DSK and UBB since 2014, the banking sector has distributed a total of BGN 7.5 billion in dividends, of which BGN 2.85 billion came from DSK and over BGN 2.5 billion from Unicredit Bulbank. UBB and its acquired Raiffeisenbank are third with a total of BGN 1.2 billion.
The banking sector reported a record profit of BGN 3.7 billion for 2024, but 2023's peak of BGN 1.1 billion in dividends distributed would not fall. That, at least, is what the plans of the country's biggest financial institutions suggest before their annual shareholder meetings, where this is decided. There is not a full picture at this stage, but based on policy in previous years and the filings so far, it seems only about 20% of profits, or about BGN 750 million, will be distributed to shareholders, and 80% will be capitalised to underpin continued credit growth.
