Press releases
16. 6. 2022
  • Financial stability

CNB confirms mortgage limits and leaves countercyclical capital buffer rate at 2.5%

  • The CNB Bank Board kept unchanged the limits on credit ratios for the provision of mortgage loans applicable since 1 April 2022.
  • The limit on the DTI (debt-to-income) ratio will remain 8.5 (9.5 for applicants under 36 years).
  • The limit on the DSTI (debt service-to-income) ratio will be kept at 45% (50% for applicants under 36 years).
  • The upper limit on the LTV (loan-to-value) ratio will stay at 80% (90% for applicants under 36 years).
  • Lenders may continue to apply an exemption not exceeding 5% of the total volume of mortgage loans provided.
  • Apartment prices in the Czech Republic were about 40% higher at the end of 2021 than the level consistent with the income of the median household and with minimum required rental yields.
  • The Bank Board also decided today to leave the countercyclical capital buffer rate unchanged at 2.5%; banks will be required to maintain the buffer at this level from 1 April 2023.
  • The Czech financial sector remains highly resilient to adverse economic developments.
  • The banking sector has enough capital to absorb shocks even in the event of longer-lasting economic problems.
  • The non-bank financial sector (insurance companies, pension funds etc.) also remains resilient.
  • In the minutes of this meeting, which will be published on 4 July 2022, the CNB will start to publish the votes cast by the individual Bank Board members on financial stability issues and also attributed arguments.

The Bank Board of the Czech National Bank today discussed Financial Stability Report – Spring 2022, which assesses the soundness of the domestic financial sector and its resilience to adverse shocks. This document formed the foundation for the Bank Board for configuring macroprudential policy, the main instruments of which are the countercyclical capital buffer of banks and limits on mortgage lending ratios.

The CNB Bank Board decided today to leave the upper limits on the LTV, DTI and DSTI mortgage lending ratios at the level applicable since April 2022. This decision was based on an assessment of indicators of the financial cycle and the vulnerability of the banking sector and other factors affecting the sector’s resilience. Banks will thus still be allowed to provide loans with an LTV of up to 80% of the value of the pledged property (90% for applicants under 36 years). At the same time, banks will be required to comply with upper limits on the DTI (debt-to-income) ratio of 8.5 and on the DSTI (debt service-to-income) ratio of 45% (9.5 and 50% respectively for applicants under 36 years). The limits for applicants under 36 years only apply to loans for the purchase of owner-occupied housing. The limits have been set in accordance with the amended Act on the CNB, which since August 2021 authorises the central bank to set binding limits on the three ratios.   

“Setting limits on the LTV, DTI and DSTI ratios is essential at this time of exceptional uncertainty. The persisting high overvaluation of housing prices and the fact that the share of loans with highly risky characteristics continued to rise in the first few months of this year cannot be ignored,” said CNB Governor Jiří Rusnok after today’s Bank Board meeting on financial stability issues.

The CNB continues to use an implementing regulation (the “Recommendation”) to set additional conditions related to mortgage lending which are not governed by the Act on the CNB. These include, for example, a maximum loan term, testing of whether applicants are able to withstand a rise in interest rates, and non-provision of loans with a non-standard repayment schedule shifting the applicant’s commitments to a later period.

Financial Stability Report – Spring 2022 also summarises the results of the stress tests of individual segments of the domestic financial sector and sectors of the real economy. The results confirm that they are able to withstand longer-lasting highly adverse developments. However, credit defaults and losses on financial assets would rise substantially, requiring some financial institutions to partially increase their capital, funds or assets.

“The banking sector as a whole would comply with the regulatory limits on the capital and leverage ratios even in the Adverse Scenario, which involves exceptionally high stress by historical comparison. However, the impact of this scenario on banks’ capitalisation would be very significant. The current situation and risks therefore require banks to act very prudently in the management of balance sheets, risks and capital, and in their dividend policies,” said Jan Frait, Executive Director of the CNB’s Financial Stability Department.

The Bank Board also decided today to leave the countercyclical capital buffer rate unchanged at 2.5%; banks will be required to maintain the buffer at this level from 1 April 2023. Until then, the countercyclical capital buffer rate will rise gradually from the current level of 0.5% in accordance with earlier decisions. In this decision, the Bank Board took into account the high volume of previously accepted risks in the banking sector’s balance sheet and additional risks taken on through rapid credit growth. Credit growth in the main credit segments was well above the historical averages in 2022 Q1. The Bank Board also took into account the current geopolitical and macroeconomic uncertainties, which create room for sudden and strong materialisation of previously accepted risks.

The gradual buffer increase gives the CNB room to take a flexible approach in the event of unexpected adverse shocks.

“Should the economic situation worsen and the domestic banking sector incur significant unexpected credit losses, the CNB is ready to lower the rate or release the buffer fully to support banks’ ability to lend to the real economy without interruption,” emphasised Governor Rusnok.

The CNB will publish the full Financial Stability Report – Spring 2022 on 4 July 2022. The minutes of today’s Bank Board meeting on financial stability issues will be published the same day. For the first time ever, the minutes will disclose the votes cast by the individual Bank Board members on macroprudential policy measures and also attributed arguments. This further enhances the Czech National Bank’s high transparency and follows the practice applied in the minutes of monetary policy meetings.

Markéta Fišerová
Director of the Communications Division and CNB Spokesperson

Notes for journalists:

Financial stability has been a key objective of the Czech National Bank alongside price stability since 2013.

The CNB Bank Board discusses financial stability issues twice a year – in the spring in May, and in the autumn in November. The aim of this report is to identify the risks to the financial stability of the Czech Republic in the near future on the basis of previous and expected developments in the real economy and the financial system.

The main macroprudential policy tools applied in the Czech Republic are the countercyclical capital buffer (CCyB), the capital conservation buffer (CCoB) set for all banks, the capital buffer for other systemically important institutions (O-SIIs) set for systemically important banks, the upper limits on the LTV, DTI and DSTI credit ratios set for all mortgage lenders.

Countercyclical capital buffer (CCyB) – This instrument is aimed at increasing the resilience of the banking sector to risks associated with fluctuations in lending activity. The CCyB should enable banks to lend to households and firms even at a time of recession or financial instability.

Combined capital buffer – the sum of the capital conservation buffer (CCoB), the countercyclical capital buffer (CCyB), the systemic risk buffer (SRB) and the capital buffer for other systemically important institutions.

LTV (loan-to-value) – the ratio of the value of a mortgage loan to the value of collateral.

DTI (debt-to-income) – the ratio of the applicant’s total debt to their net annual income.

DSTI (debt-service-to-income) – the ratio of the sum of an applicant’s monthly repayments to their net monthly income.

Maintaining financial stability is defined in the Act on the CNB as one of the CNB’s primary objectives. The Act requires the CNB to set macroprudential policy by identifying, monitoring and assessing risks jeopardising the stability of the financial system and, in order to prevent or mitigate these risks, to contribute by means of its powers to the resilience of the financial system and the maintenance of financial stability.