CNB published a report assessing the soundness and stability risks of the financial sector in the country, based on the 2020 data available to date. On the basis of this analysis, the CNB Board decided to keep the countercyclical capital buffer (CCyB) rate for banks unchanged at 0.5%, in addition to keeping the loan-to-value (LTV) limit unchanged at 90%, with the option of applying a 5% volume exemption. However, if a much more adverse scenario materializes, CNB is ready to release the CCyB fully.
The report on financial stability assessment highlights that results of the macro stress test of banks show that the capital surplus level can be very important in maintaining banking sector stability in highly adverse economic conditions. The report also reveals that a renewed spiral between credit financing of residential property purchases and rapidly rising residential property prices is a significant source of systemic risk in the Czech economy. The continued strong growth in property prices in the Czech Republic caused the affordability of housing to deteriorate and led to a rise in house price overvaluation. CNB states that, in their mortgage lending, financial institutions mostly comply with the recommended limits on mortgage ratios or respect the CNB indication of high-risk levels. Therefore, the Board has decided to keep the LTV limit unchanged and does not deem it necessary to set limits on the other two mortgage ratios—that is, debt-to-income (DTI) and debt-service-to-income (DSTI)—or to tighten the other parameters of the risk management recommendation associated with the provision of mortgages. However, some players on the mortgage market have taken on higher-than-recommended credit risk, especially in the second quarter of 2020. CNB supervisors will focus on these lenders in the period ahead, assessing whether they have sufficient buffers to cover the higher risk.
Keywords: Europe, Czech Republic, Banking, Financial Stability, CCyB, COVID-19, DSTI, Credit Risk, Macro-Prudential Policy, Mortgage Lending, Systemic Risk, Regulatory Capital, Basel, CNB
Previous ArticleBNB Identifies Eight Banks as O-SIIs, Extends Loan Moratorium
PRA published a "Dear CEO" letter that sets out findings of a review on the reliability of regulatory reporting and reiterates the supervisory expectations on regulatory reporting.
The Australian Prudential Regulation Authority (APRA) confirmed that its new data collection solution APRA Connect will go live on September 13, 2021.
The Federal Reserve System (FED) published a paper describing the landscape of partnerships between community banks and fintech companies.
The Federal Deposit Insurance Corporation (FDIC) has chosen four companies—Novantas Inc, Palantir Technologies Inc, PeerIQ, and S&P Global Market Intelligence LLC—to propose a pilot consisting of testing new reporting and analytical tools with a small group of FDIC-supervised institutions on a voluntary basis.
The Prudential Regulatory Authority (PRA), via the consultation paper CP18/21, proposed changes to the applicable requirements on the identification of material risk-takers for the purposes of the remuneration regime.
The Joint Committee of European Supervisory Authorities (ESAs) published its second 2021 joint risk assessment report for the financial sector.
The International Organization of Securities Commissions (IOSCO) published a statement reiterating the importance of continued transition to robust alternative financial benchmarks—that is, risk-free rates—to mitigate potential risks arising from the cessation of LIBOR, including the USD LIBOR.
The Board of Governors of the Federal Reserve System (FED) proposed revisions and three-year extension of the FRY-9 reports on financial statements for holding companies (OMB Control Number 7100-0128).
The Single Resolution Board (SRB) Chair, Elke König, published an article on improving the resolution framework for medium-size banks.
The French Prudential Control and Resolution Authority (ACPR) announced that the testing environment for the ACPR information system and the OneGate portal will be available to receive test reports with the Legal Entity Identifier (LEI) from September 08, 2021.