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
Previous ArticleBoM Extends Certain Measures Under COVID-19 Support Program
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.