Dividends and buybacks should remain below 15% of cumulated 2019-2020 profit.

The European Central Bank (ECB) recommended yesterday that banks exercise extreme prudence on dividends and share buy-backs. To this end, the ECB asked all banks to consider not distributing any cash dividends or conducting share buy-backs, or to limit such distributions, until 30 September 2021. The recommendation also reflects an assessment of the stability of the financial system and was made in close cooperation with the European Systemic Risk Board.

The ECB said that the continent’s banks should keep dividends and share repurchases to less than 15% of profit for 2019 and 2020, or 0.2% of their CET 1, whichever is lower.

The previous recommendation for a temporary suspension of all cash dividends and share buy-backs of 27 March 2020 (and its subsequent extension on 28 July) reflected the exceptional and challenging circumstances which the European economy faced in 2020.

The revised recommendation aims to safeguard banks’ capacity to absorb losses and lend to support the economy. A continued prudent approach remains necessary, as the impact of the pandemic on banks’ balance sheets has not manifested itself in full at a time when banks are still benefiting from several public support measures, and considering that credit impairments come with a temporal lag.

What does this mean for NLB’s dividend payment?

As a reminder, NLB medium target dividend payout ratio until 2023 is set at 70%, while the company generated a net profit to majority of EUR 193.6m. Under the assumption of cost of risk ending the year at 150 bps, such a payment would infer a potential dividend of EUR 1.9 per share (DY 4.2%) according to our first estimates. We note that there is a real possibility that cost of risk will be below the estimated 150bps which would further boost the bottom line.

The Digital Markets Act proposes imposing sanctions for non-compliance, which could include fines of up to 10% of the gatekeeper’s worldwide turnover, to ensure the effectiveness of the new rules.

Yesterday, the European Commission  proposed two bills—one focused on illegal content, the other on anticompetitive behaviour—that would empower regulators in some cases to levy fines of up 10% of annual world-wide revenue, or break up big tech companies to stop certain competition abuses.

The bills don’t mention any specific company but, one or both would likely apply to several large U.S. tech companies including Alphabet’s Google, Amazon, Apple and Facebook.

The European Commission noted that the Digital Markets Act addresses the negative consequences arising from certain behaviours by platforms acting as digital “gatekeepers” to the single market. These are platforms that have a significant impact on the internal market, serve as an important gateway for business users to reach their customers, and which enjoy, or will foreseeably enjoy, an entrenched and durable position. This can grant them the power to act as private rule-makers and to function as bottlenecks between businesses and consumers. Sometimes, such companies have control over entire platform ecosystems. When a gatekeeper engages in unfair business practices, it can prevent or slow down valuable and innovative services of its business users and competitors from reaching the consumer. Examples of these practices include the unfair use of data from businesses operating on these platforms, or situations where users are locked in to a particular service and have limited options for switching to another one.

Concretely, the Digital Markets Act will:

• Apply only to major providers of the core platform services most prone to unfair practices
• Define quantitative thresholds as a basis to identify presumed gatekeepers
• Prohibit a number of practices which are clearly unfair, such as blocking users from un-installing any pre-installed software or apps
• Require gatekeepers to proactively put in place certain measures, such as targeted measures allowing the software of third parties to properly function and interoperate with their own services
• Impose sanctions for non-compliance, which could include fines of up to 10% of the gatekeeper’s worldwide turnover, to ensure the effectiveness of the new rules. For recurrent infringers, these sanctions may also involve the obligation to take structural measures, potentially extending to divestiture of certain businesses, where no other equally effective alternative measure is available to ensure compliance.

In October there were 7.6% more building permits issued than in October 2019. Also the expected value of construction work is up 9.7% YoY amounting to HRK 3bn.

The Croatian Bureau of Statistics has published data on building permits issued in October, and the numbers are up looking on the monthly level. In October there were 7.6% more building permits issued than in October 2019. Also the expected value of construction work is 9.7% up YoY amounting to HRK 3bn. But when we look at 10M 2020 period, the value of expected work for permits issued it is still down 20% YoY. In the first 10M of 2020 there were in total 7,668 building permits issued and 7.4% YoY less than in the same period last year. 75.5% of those building permits pertain to new constructions. This 2.1 p.p. higher than in permits issued in 10M 2019, which means that the demand for new construction is expected to increase. Also the value of construction work done with own workers and new orders in 9M 2020 amounts to HRK 13.9bn and is 8% up YoY.

Could this mean that construction sector is preparing for higher demand once economy picks-up and employment and wages start growing again? If we were to take lessons from the last crises it is not likely that this sector will recovery anytime soon. When looking at the number of completed buildings on an annual level we can see that it has started to grow only in 2016 when it grew 4% YoY after 9 years of decrease. In 2019 number of completed buildings increased 12% YoY while floor area of completed buildings increased 16%. Before the 2008 financial crisis, Croatian construction companies have been posting strong results on the back of a booming construction cycle in Croatia. However, as the financial crisis struck, investments came to a halt which triggered a downward spiral for the sector.

Number of Completed Buildings

OMV Petrom and Auchan Retail Romania will invest more than EUR 50m to refurbish 400 Petrom branded filling stations.

OMV Petrom inaugurated the first upgraded Petrom branded filling station, as part of an extensive modernization program of the entire network. This filling station includes a fast lane for fueling and card payments solutions at the pump.

OMV Petrom and Auchan Retail Romania, the subsidiary in Romania of Auchan Retail, one of the largest global groups in food retail, started the integration of MyAuchan proximity shopping stores into Petrom branded filling stations. The two companies will invest more than EUR 50m to refurbish 400 Petrom branded filling stations. During the period 2021 – 2024, approximately 400 Petrom branded filling stations located in rural and urban areas of the country will be refurbished both inside and outside.