Featured Product

    IMF Reports on 2019 Article IV Consultation with Czech Republic

    June 13, 2019

    IMF published its staff report and selected issues report under the 2019 Article IV consultation with Czech Republic. IMF Directors highlighted that the banking system is stable, well-capitalized, and well-placed to direct credit toward investment. Macro-prudential measures can help ensure that households do not take on too much debt. However, these measures should be complemented with measures to enhance housing supply.

    The staff report highlights that banks hold over three quarters of financial-sector assets, with the rest mostly held by insurance, pensions, and funds companies. There are seven other significant institutions in the banking sector and five that are assessed to be systemically important. The three largest lenders are subsidiaries of EU banks. Across the system, banks are funded mostly by deposits; bank assets are mostly in loans, of which about half is directed to households. Capital ratios are well above the regulatory minima. The overall capital ratio increased by about 0.2 percentage points in 2018 to 18.3%, comfortably above the minimum level of regulatory capital of 15.4% for the system as a whole, while the tier 1 capital ratio increased by 0.3 percentage points to 17.8%.

    Nonetheless, the continuing decline in risk-weights could be increasing financial-sector vulnerability. Because of favorable economic conditions and low impairments, banks’ internal risk-based models are leading to decreasing risk-weights across categories. Risk-weights for housing loans have fallen by one-third over the past three years, to 21.9%—not yet low by international comparison, but nonetheless making issuing housing loans relatively “cheap” for banks in terms of the required capital. The leverage ratio has also increased and, at 6.5%, remains at a comparatively high level. Banks are highly profitable, owing to high net interest margins and low impairments. Non-performing loans (NPLs) declined further to 3.1% of the total gross loans in 2018. The authorities have appropriately responded with increasing capital requirements. The countercyclical capital buffer, currently at 1.25%, will increase to 1.5% in July 2019 and to 1.75% in January 2020. The systemic risk buffers applying to the five domestic systemically important banks remain unchanged.

    Macro-prudential recommendations that appropriately target household leverage have been announced, although the overall household debt is relatively low. Macro-prudential limits should be given some time to have effect but might yet need to be tightened. The number of new mortgages has decreased but house prices continue to increase, suggesting that the leverage might still be elevated for some borrowers. Hence, more tightening might yet be required. Since the underlying concern is household leverage, attention should be focused on the debt-based measures. 

     

    Related Links

    Keywords: Europe, Czech Republic, Banking, NPLs, Macro-Prudential Measures, Regulatory Capital, Systemic Risk, CCyB, IMF, EU

    Featured Experts
    Related Articles
    News

    APRA Updates Timelines for Revision of Market Risk Standards

    The Australian Prudential Regulation Authority (APRA) released an update on the timelines for revisions to the market risk prudential standards and the implications for the broader capital framework.

    October 27, 2021 WebPage Regulatory News
    News

    BCBS and IOSCO Propose Further Policy Work on Margining Practices

    Three global standard-setters launched a joint consultation that reviews the margining practices during the COVID-19 pandemic and identifies potential areas for further policy work.

    October 26, 2021 WebPage Regulatory News
    News

    BoE Seeks Information Before Migrating Statistical Reporting to BEEDS

    The Bank of England (BoE) published the Statistical Notice 2021/09 requiring additional information from firms and software vendors to assist in the onboarding and testing phases for migrating statistical reporting to the BEEDS portal.

    October 25, 2021 WebPage Regulatory News
    News

    EBA Finalizes Standards on Alternative SA for Market Risk

    The European Banking Authority (EBA) published the final draft regulatory technical standards on gross jump-to-default amounts and on residual risk add-on under the Capital Requirements Regulation or CRR.

    October 25, 2021 WebPage Regulatory News
    News

    FCA Publishes Final Rules on Investment Firms Prudential Regime

    The Financial Conduct Authority (FCA) published the final rules on the Investment Firms Prudential Regime (IFPR) to streamline and simplify the prudential requirements for solo-regulated UK firms authorized under the Markets in Financial Instruments Directive (MiFID).

    October 25, 2021 WebPage Regulatory News
    News

    ESAs Propose New Rules for Taxonomy-Related Product Disclosures

    The European Supervisory Authorities (ESAs) have delivered to the European Commission (EC) the final report on the draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR).

    October 25, 2021 WebPage Regulatory News
    News

    EBA Advice on Review of Crisis Management/Deposit Insurance Framework

    The European Banking Authority (EBA) published an advice to the European Commission (EC) on funding in resolution and insolvency as part of the review of the crisis management and deposit insurance (CMDI) framework.

    October 25, 2021 WebPage Regulatory News
    News

    FSOC Report Issues Recommendations to Address Climate Risks

    The Financial Stability Oversight Council (FSOC) released a report in response to the U.S. President's Executive Order on climate-related financial risk.

    October 21, 2021 WebPage Regulatory News
    News

    BIS Paper Mulls Policies to Alleviate Challenges Posed by Big Techs

    The Bank for International Settlements (BIS) published a paper that examines the business models and the associated risks posed by big technology firms foraying into financial services sector.

    October 21, 2021 WebPage Regulatory News
    News

    BIS to Launch Asian Green Bond Fund Early Next Year

    The Bank for International Settlements (BIS) announced the development of an Asian Green Bond Fund, in collaboration with the development financing community, to channel global central bank reserves to green projects in Asia Pacific.

    October 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7609