CNB Relaxes Mortgage Limits, Reduces Capital Buffer
The CNB Board has confirmed the limit for the loan-to-value (LTV) indicator at 90% and abolished the limit for the debt-service-to-income (DSTI) indicator. The Board also reduced the countercyclical capital buffer rate for banks to 0.5%, with effect from July 01, 2020 (from the current level of 1%). The partial release of the countercyclical capital buffer will support the ability of banks to lend to non-financial corporations and households. In the event of a significant increase in credit losses of banks amid the pandemic, CNB stated that it is prepared to fully release the countercyclical capital buffer to support the ability of banks to lend smoothly to non-financial corporations and households. These decisions were based on the financial stability report for 2019-2020, which CNB published on July 08, 2020 and which identities risks to the financial stability of the Czech Republic for the near future.
The financial stability report indicates that available unofficial data for the first months of 2020 suggest that measures against the COVID-19 pandemic have not yet had a significant effect on residential property prices. However, due to unfavorable developments in the real economy, there is potential for a decline in the coming quarters. The report highlights that situation in the domestic financial sector changed radically with the outbreak of the COVID-19 pandemic. The domestic financial sector, which continued to grow in most segments in 2019, entered the COVID-19 crisis in good shape. The main task of both micro-prudential and macro-prudential policies is now to ensure that the banking sector is sufficiently resilient to the effects of the COVID-19 crisis. The capital adequacy of the banking sector is robust for the time being. Most banks currently meet the aggregate capital requirement and have sufficient spare capacity to lend. In addition to the combined capital reserve, capital surplus and profit retained in accordance with the CNB recommendation also play a significant role in the capital cushion above the regulatory minimum. CNB asserts that it is ready to use all its supervisory and regulatory tools to maintain this situation.
Related Links (in Czech)
- Press Release
- Mortgage Limit Recommendations
- Capital Buffer Decision
- Financial Stability Report (PDF)
Keywords: Europe, Czech Republic, Banking, Financial Stability Report, CCyB, RRE, COVID-19, DSTI, Financial Stability, Credit Risk, CRE, LTV, CNB
Featured Experts
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
BoM Extends Certain Measures Under COVID-19 Support ProgramRelated Articles
HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
EBA Guide to Monitor Threshold for Intermediate Parent Undertakings
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
ESMA Group Issues Recommendations on RFR Switch in Interdealer Market
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
ECB Study Assesses Impact of Basel III Finalization Package
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
PRA Updates Remuneration Policy Statement Templates and Tables
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.
