CNB Publishes Financial Stability Report for 2018–19
CNB published the financial stability report for 2018–19. The report discusses developments in the banking and non-banking financial sector. The report contains information on the overall risk assessment, the stress tests of individual segments of the financial sector, the macro-prudential instruments for risk mitigation, and the analysis of risks associated with regulatory developments. CNB discussed the report at it Board meeting on May 23, 2019. At the meeting, the Board decided to increase the countercyclical capital buffer (CCyB) rate to 2.0%, with effect from July 01, 2020.
The decision on the CCyB rate reflects an increase in risks associated with economic developments in the upward phase of the financial cycle and a slight increase in signals of vulnerability of the domestic banking sector to a potential adverse change in conditions. Keeping in mind the reasonable dividend policies, banks have sufficient space for a prospective increase in the CCyB and the growth in their credit portfolios on the aggregate level. With regard to estimates of house price overvaluation, CNB regards the current loan-to-value (LTV) limits as upper bounds, although the bank does not deem it necessary to tighten the LTV limits.
After the recommended debt-to-income (DTI) and debt-service-to-income (DSTI) limits entered into force in October 2018, the shares of loans in excess of the recommended levels of the two ratios started to head toward the 5% exemption. However, the adjustment process has not yet been completed and banks were non-compliant with the recommended limits overall in the fourth quarter of 2018. CNB expects banks to comply with the limits in the first half of this year. Despite a small reduction of the room for interest rates on mortgage loans to rise sharply, the Board decided to leave the recommended cap on the DSTI ratio at 45%. Meanwhile, CNB expects lenders to continue to be highly prudent in providing loans with DSTI ratios of between 40% and 45%, as the conclusions of its analyses and stress tests demonstrate that loans with DSTI ratios of over 40% can be regarded as highly risky.
Overall, banks have strengthened their capital adequacy in the previous period and have high liquidity. Insurance companies maintained their capitalization and profitability despite the financial market developments that unfavorably affected the value of their assets and liabilities. Pension management companies and investment funds were adversely affected by changes in asset prices at the end of 2018, but this did not result in an outflow of clients or in systemically important losses. CNB will publish additional detailed analyses of risks to financial stability and information about the macro-prudential policy settings in December in its regular document "Risks to financial stability and their indicators – December 2019," which will be the underlying document for the autumn Board meeting on financial stability issues.
Related Links
- Financial Stability Report
- Provision on Setting of CCyB Rate
- Press Release on Board Meeting, May 2019
Effective Date: July 01, 2020 (CCyB Rate)
Keywords: Europe, Czech Republic, Banking, Insurance, Securities, Financial Stability, CCyB, Stress Testing, LTV, Mortgage Lending, Capital Adequacy, Macro-Prudential Policy, Credit Risk, CNB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager

James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
IMF Report on 2019 Article IV Consultation on Euro Area PoliciesRelated Articles
ECB Finds Banks Unprepared for Pillar 3 Climate Risk Disclosures
The European Central Bank (ECB) published results of the 2022 supervisory assessment of climate-related and environmental risk disclosures among significant institutions (103) and a selected number of less significant institutions (28).
NCUA Assesses Credit Union Exposure to Climate-Related Physical Risks
The National Credit Union Administration (NCUA) released a Research Note that examines the exposure of credit unions to climate-related physical risks. In a related development
EBA Issues Multiple Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework.
EC Adopts Regulation on Own Funds, Issues Other Updates
The European Commission adopted Delegated Regulations on own funds and eligible liabilities, on requirements for the internal methodology under the internal default risk model
CDP Platform to Report Plastic-Related Impact, Issues Other Updates
The Carbon Disclosure Project (CDP) announced that its global environmental disclosure platform has enabled reporting on plastic-related impact for nearly 7,000 companies worldwide
IASB to Enhance Reporting of Climate Risks, Proposes IFRS 9 Amendments
The International Accounting Standards Board (IASB) updated its work plan to enhance the reporting of climate-related risks in the financial statements,
BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks.
FCA Sets Out Business Plan, Launches TechSprint on Greenwashing
The Financial Conduct Authority (FCA) published its business plan for 2023-24. The plan sets out details of the work planned for the next 12 months to achieve better outcomes for consumers and markets
UK Committee Sets Out Recommendations for Next Phase of Open Banking
The Joint Regulatory Oversight Committee (JROC), comprising the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and the HM Treasury and the Competition and Markets Authority (CMA) as members
ECB Publishes Multiple Regulatory Updates for Banking Institutions
The European Central Bank (ECB) published the results of the 2022 climate risk stress test of the Eurosystem balance sheet,