The Bank Board of the Czech National Bank (CNB) decided to increase the countercyclical capital buffer (CCyB) rate for exposures located in the Czech Republic by 50 basis points to 1.50% from October 01, 2022. This is the second time increase this year, owing to the end of the acute phase of pandemic, improving expectations, historically record volumes of housing loans accompanied by rapid developments in the real estate market, and high levels of previously accumulated risks in balance sheets of banks. CNB also announced that it is setting the other systemically important institution (O-SII) capital reserve (J-SVI reserve) for five institutions in the range of 0.5% to 2.5% of their total risk exposure.
With this, CNB intends to reduce the risks associated with the systemic importance of financial institutions by setting the J-SVI reserve, instead of the capital reserve previously applied to cover systemic risk (the KSR reserve). This change is based on the transposition of the most recently revised Capital Requirements Directive (CRD V) into Czech law. Based on a review of data for the first quarter of 2021, CNB set the following J-SVI reserve rates with effect from October 01, 2021: ČSOB at 2.5%, Česká spořitelna and Komerční banka at 2%, Unicredit Bank at 1%, and Raiffeisenbank at 0.5%. For all institutions, the rate of the J-SVI reserve is lower compared to the previously applied KSR reserve. Institutions are required to maintain a J-SVI reserve consisting of equity on an individual and consolidated basis in the appropriate percentage of the total volume of risk exposure.
In another announcement, CNB has completed an assessment of the capital situation of individual banks and decided that it will not limit bank dividends for 2021, for the next period. CNB expects that banks will continue to approach the distribution of profits conservatively to maintain a safe level of their capital adequacy. CNB also advised banks to consider further dividend payments only after they have the final financial results for 2021 and are aware of the effects of the pandemic in the autumn and winter months. CNB also informed the banks that proposals for profit distribution would be assessed through a standard supervisory process.
Keywords: Europe, Czech Republic, Banking, CCyB, Dividend Distribution, Systemic Risk, Regulatory Capital, Basel, Macro-Prudential Policy, CRD, O-SII, CNB
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