CNB Examines Financial Sector Stability, Increases CCyB Rate to 1%
The CNB Board decided to increase the countercyclical capital buffer (CCyB) rate to 1%, with effect from July 01, 2022. The Board also decided to reduce the frequency of the two-week liquidity-providing repo operations for credit institutions to once a week, with effect from May 28, 2021, and to reintroduce the previously applied interest rate mark-up of 0.1 pp. However, a decision was made to keep the recommended loan-to-value (LTV) limit unchanged at 90%, with the option of applying a 5% exemption.
At this time, CNB does not deem it immediately necessary to set debt-to-income (DTI) and debt service-to-income (DSTI) limits or to tighten the other parameters of the existing recommendation on the management of risks associated with the provision of mortgage loans issued in April 2020. CNB regards the high and increasing share of loans with a DTI ratio of over 8% and a DSTI ratio of over 40% as a potential source of systemic risk. Therefore, lenders are advised to ensure that such loans are only provided to applicants that are highly likely to repay without problems. CNB would have to react using macro-prudential policy tools to any further easing of credit standards and taking on of additional risks. During the meeting, the CNB Board also discussed the Spring Financial Stability Report, noting that a significant source of systemic risk in the domestic economy is the repeated reversal of the spiral between debt financing for the purchase of residential real estate and its rapidly rising prices. Despite the pandemic, residential property prices in the Czech Republic have risen and are now about 70% higher than they were at their lowest point at the end of 2013, thus making housing less affordable. This report is the foundation for the decisions regarding macro-prudential policy instruments, which above all include the countercyclical capital buffer (CCyB) of banks and limits on mortgage lending indicators.
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Keywords: Europe, Czech Republic, Banking, CCyB, Credit Risk, Macro-Prudential Policy, Systemic Risk, Regulatory Capital, Basel, Mortgage Lending, DSTI, DTI, LTV, Financial Stability Report, CNB
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