CNB Board Meeting of 18 June 1998
The Czech National Bank Board decided at its meeting on 18 June 1998 to start gradually lowering the minimum reserve requirement (MRR). The Board decided to reduce the current 9.5% rate on primary deposits to 7.5%, effective 30 July 1998. The 4% MRR rate for building societies and Českomoravská záruční a rozvojová banka (Czech and Moravian Guarantee and Development Bank) on primary deposits remains unchanged. A further MRR reduction to the level of roughly 5% on primary deposits will take place in connection with the demonetisation of public debt financing. The government had already declared its intention to finance the hidden public debt through government bond issues. This CNB Board decision was based on an analysis of the significance of MRR as a monetary instrument. The MRR's importance has diminished in connection with the implementation of monetary policy by means of interest rates, and its current rate has a negative impact on banking sector competitiveness.
The Board has also approved an amendment to the CNB provision stipulating the principles of credit claim classification and creation of reserves and provisions for these claims. From the second half of 1998, banks will be obliged to gradually raise provisions for loss loans secured by real estate, so that during the following three years these loss loans should be fully covered by provisions.
| Overdue loans | as of 31 Dec. 1998 | as of 31 Dec. 1999 | as of 31 Dec. 2000 | every year to follow |
|---|---|---|---|---|
| 361 - 720 days | 10% | 30% | 100% | 100% |
| 721 - 1080 days | 20% | 40% | - | - |
| 1081 - 1440 days | 30% | 50% | - | - |
| 1440 days or more | 100% | 70% | - | - |
This amendment means an improvement in the prudential bank business rules which was necessitated by legal and procedural problems in recovering debts and particularly by the critical situation in foreclosing on real estate collateral.
The Board further agreed that the CNB should officially announce to the Basle Committee on Banking Supervision its accession to Core Principles for Effective Banking Supervision. This internationally acknowledged document summarises 25 principles for banking supervision activities. The implementation of these principles in the Czech Republic will require gradual changes in laws and banking supervision regulations.
CNB - M. Švehla