CNB increases countercyclical capital buffer rate to 1.5% from October 2022
The CNB Bank Board decided today to increase the countercyclical capital buffer rate for exposures located in the Czech Republic by 50 basis points to 1.50% from 1 October 2022.
The Bank Board decided to increase the rate for the second time this year due to the winding down of the acute phase of the pandemic, improving expectations, all-time high volumes of house purchase loans accompanied by rapid changes on the property market, and the high level of previously accumulated risks in banks’ balance sheets. If loans continue to grow quickly and the taking on of risks in the banking sector’s balance sheet intensifies, the CNB is ready to increase the rate further.
By contrast, should the economic situation worsen again due, for example, to another wave of the pandemic, the CNB will be ready to decrease again or release the buffer immediately and fully, in order to support banks’ ability to provide credit to non-financial corporations and households without interruption. The decisive signal for such a step would be a significant worsening of the economic situation, cyclical risks accepted earlier materialising via credit losses and an increase in risk weights for loan portfolios.
The countercyclical capital buffer was introduced as an important macroprudential policy instrument in the European Union in 2014. Obliged institutions are required to create this buffer on the basis of the regulator’s instructions in periods of excessive growth in lending. Excessive lending growth usually increases financial imbalances and leads to a rise in systemic risk. By contrast, at times of falling economic activity, accompanied by rising credit losses, this buffer should be released so that non-financial corporations and households continue to have access to loans without excessively tight conditions.
More details on this decision are available in the Provision of a general nature on setting the countercyclical capital buffer rate for the Czech Republic III/2021, which will be published on 27 August 2021.
- The countercyclical capital buffer is set in the Czech Republic by the Czech National Bank on a quarterly basis in a document entitled Provision of a general nature on setting the countercyclical capital buffer rate. It is intended to protect the banking sector against risks arising over the financial cycle. These include in particular risks stemming from excessive growth in lending, which contributes to the build-up of systemic risks and increases the potential for sharp fluctuations in economic activity.
- More information about the countercyclical capital buffer on the CNB website
- Information about the setting of the countercyclical capital buffer in other European countries on the website of the European Systemic Risk Board (external link)