IMF Reports on 2019 Article IV Consultation with Czech Republic
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

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

Trevor Howes
IFRS 17 technical advisor; AXIS actuarial modeling system expert; extensive experience in life insurance and life reinsurance, with focus on modeling, valuation, and financial reporting

Tony Hughes
Econometrician focusing on developing innovative approaches and tools for assessing and valuing financial institution assets, as well as for modeling and analyzing credit risk associated with various lending activities and loan portfolios.
Related Articles
News
APRA Updates Lists of Validation and Derivation Rules in December 2019APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
December 13, 2019
WebPage
Regulatory News
|
News
APRA Finalizes Prudential Standard for Credit Risk Management of BanksAPRA updated the prudential standard on credit risk management requirements (APS 220) for authorized deposit-taking institutions, post a public consultation.
December 12, 2019
WebPage
Regulatory News
|
News
EIOPA Consults on Guidelines on ICT Security and GovernanceEIOPA issued a consultation on guidelines on the Information and Communication Technology (ICT) security and governance by insurers.
December 12, 2019
WebPage
Regulatory News
|
News
BCBS Consults on Design of Prudential Treatment for Crypto-AssetsBCBS published a discussion paper on the design of prudential treatment for crypto-asset exposures of banks.
December 12, 2019
WebPage
Regulatory News
|
News
NCUA Approves Delay of Risk-Based Capital Rules Until January 2022The NCUA Board held its eleventh open meeting of 2019 and approved a final rule to delay the effective date of the risk-based capital rules for credit unions to January 01, 2022.
December 12, 2019
WebPage
Regulatory News
|
News
APRA Issues Operational Risk Rules, Consults on Reporting RequirementsAPRA published an updated prudential standard APS 115 that sets out operational risk requirements for authorized deposit-taking institutions in Australia.
December 11, 2019
WebPage
Regulatory News
|
News
ESMA Updates Q&A on European Benchmarks Regulation in December 2019ESMA updated the question and answers (Q&A) document on the European Benchmarks Regulation.
December 11, 2019
WebPage
Regulatory News
|
News
APRA Decides to Keep Countercyclical Capital Buffer for Banks at 0%APRA announced its decision to keep the countercyclical capital buffer (CCyB) for authorized deposit-taking institutions on hold at zero percent.
December 11, 2019
WebPage
Regulatory News
|
News
ESMA on Draft Amendments to Indices and Recognized Exchanges Under CRRESMA issued the final report on draft amendments to the Implementing Regulation (EU) 2016/1646, which specifies the main indices and recognized exchanges, under the Capital Requirements Regulation (CRR), that are relevant to credit institutions and investment firms subject to prudential requirements and trading venues.
December 11, 2019
WebPage
Regulatory News
|
News
FED Extends Consultation Period for Capital Requirements for InsurersFED is extending comment period for the proposed rule establishing risk-based capital requirements for depository institution holding companies that are significantly engaged in insurance activities.
December 10, 2019
WebPage
Regulatory News
|