IMF Reports on 2017 Article IV Consultation with Czech Republic
IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with Czech Republic. The staff report highlights that a number of macro- and micro-prudential measures had been taken, including tighter capital requirements, off- and onsite supervision, loan-to-value (LTV) recommendations, and the consumer credit act. The selected issues report examines the impact of removing the exchange rate floor on the monetary policy.
The staff report reveals that the banking system is liquid and profitable. aggregate capital ratios are above requirements. Leverage is low and liquidity high. Banks are funded mainly from deposits. Moreover, aggregate levels of non-performing loans are low and decreasing as nominal demand picks up, while provisioning is in line with that of peers. The authorities broadly shared staff’s assessment of risks and the need for additional macro-prudential measures. The Czech National Bank has implemented a number of prudential measures to manage financial risks. Capital requirements on banks are relatively high, the capital conservation buffer has been fully implemented, and the counter cyclical capital buffer has been set to 0.5% of the risk-weighted exposure amounts (from 2017). Buffers have been activated for five systemically important banks. The authorities are moving toward implementation of the Bank Recovery and Resolution Directive (BRRD). The framework is intended to facilitate orderly resolutions of financial institution while cushioning tax payers from losses. The BRRD was transposed into Czech law in 2016; as the designated resolution authority, the CNB is working to develop resolution plans and calibrate appropriate levels of eligible liabilities for each institution (MREL). An important input to this work will be the decision at the European level about MREL targets. Given that the banking system is dominated by subsidiaries of parents from the euro area, a key issue in the development of resolution plans yet to be agreed by the Single Resolution Board and national authorities is the choice between single or multiple points of entry when resolving banks.
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Keywords: Europe, Czech Republic, IMF, Article IV, Basel III, Banking, BRRD
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