Minutes of the CNB Bank Board meeting on financial stability issues on 5 June 2025

Present at the meeting: Aleš Michl, Eva Zamrazilová, Jan Frait, Karina Kubelková, Jan Kubíček, Jan Procházka, Jakub Seidler

The meeting opened with a presentation given by the Financial Stability and Resolution Department summarising the main conclusions of Financial Stability Report – Spring 2025. The key part consisted of an assessment of cyclical risks in the current phase of the financial cycle, risks associated with the structural characteristics of the domestic economy amid heightened geopolitical uncertainty, and risks associated with rising residential property prices and the debt financing of house purchases. The aggregate results of a banking sector stress test were also presented. Based on the background material, the Bank Board evaluated the current risks to financial stability and discussed the appropriate calibration of macroprudential policy instruments – the countercyclical capital buffer, the systemic risk buffer and borrower-based measures (upper limits on the LTV, DSTI and DTI ratios).

In a general assessment of the situation, the Board agreed that the banking sector and the other segments of the financial sector were well capitalised and had a robust liquidity position and solid profitability. This made them more resilient to highly adverse shocks, a conclusion further supported by the stress test results. There were no immediate reasons for changing macroprudential policy at the moment (Aleš Michl, Eva Zamrazilová, Jan Frait), although different markets and sectors would need slightly different calibrations of the monetary and macroprudential conditions (Jan Frait). Karina Kubelková added that the materialisation of past forecasts was another argument in favour of the current macroprudential policy settings and that the frequency of the financial stability meetings meant it was possible to react in good time to any increase in risks.

The countercyclical buffer (CCyB) rate

In the part of its presentation dealing with the CCyB rate, the Financial Stability and Resolution Department said that the domestic economy had shifted further into the growth phase of the financial cycle. This shift was due primarily to rapid growth in residential property prices and growth in the volume of newly negotiated mortgage loans. For now, however, cyclical risks were not building up excessively, and this trend was expected to continue in the quarters ahead. The longer outlook for the cycle was subject to heightened uncertainty relating, among other things, to investment sentiment in the private non-financial sector in an environment of geopolitical and global trade tensions.

In its assessment, the Board agreed with the Department’s opinion and identified the role of the mortgage and property markets as key to the current situation in the financial cycle. The board members also agreed that despite the shift, the current CCyB rate was high enough to cover losses arising from the potential materialisation of the cyclical risks accumulated in banking sector balance sheets. In the ensuing discussion, a majority of the board members emphasised that the future CCyB rate could in certain conditions head in either direction. It would depend on developments in the global environment, the situation in the domestic residential property market and its financing, and on private sector investment activity. According to Jan Frait, the credit cycle was picking up slightly, and if this were to continue, he regarded a CCyB rate increase as more likely. In the discussion, Jakub Seidler mentioned that the aim of the CCyB is to make the banking sector more resilient to adverse shocks. Given the relatively low risk weights on mortgages, the CCyB rate could not be expected to fundamentally affect the mortgage and property markets going forward. In view of the higher risk weights on credit exposures, it might have a greater impact on non-financial corporations, whose borrowing activity, however, remained subdued. The other board members agreed that the different credit growth rates for non-financial corporations and households could complicate the decision on the optimal calibration of the CCyB rate, as the rate applies to both loan segments.

After the discussion, the Board decided to leave the CCyB rate at 1.25%. All seven board members (Aleš Michl, Eva Zamrazilová, Jan Frait, Karina Kubelková, Jan Kubíček, Jan Procházka, Jakub Seidler) voted in favour of this decision.

The systemic risk buffer (SyRB) rate

In the part of its presentation on structural risks, the Financial Stability and Resolution Department said that the list and nature of the long-term structural risks in the domestic economy were little changed compared with last year. The risk of them materialising remained elevated because of the uncertain global situation accompanied by trade tensions. Some of the components of structural risk, such as cyber risk, had strengthened further in year-on-year terms. The reasons for keeping the SyRB rate at 0.5% thus persisted.

The Board assessed the structural risks as still relevant to the Czech economy overall and agreed that they were systemic in nature. Given the long-term character of the underlying risks, they can be expected to have a significant effect in the years ahead as well. Some of the board members (Jan Frait, Karina Kubelková, Jan Procházka, Jakub Seidler) emphasised that the current environment of extreme macroeconomic, financial and geopolitical uncertainty was widening the range of highly adverse scenarios that might potentially occur in the future. With the benefit of hindsight, this confirmed that it had been right to introduce the SyRB in good time. Karina Kubelková said that if the situation linked with the actions of the US administration and with the trade wars escalated further, it would be legitimate in her opinion to discuss raising the SyRB rate. In this regard, Jakub Seidler added that the main aim of the decision to introduce the buffer in 2024 had been to make the domestic financial sector more resilient to the risk of escalation of scenarios like the current ones. The present calibration could thus be considered appropriate and the right thing was to wait and see how the situation developed before taking further action.

After discussing the structural risks, the Board decided to leave the SyRB rate at 0.5%. All seven board members (Aleš Michl, Eva Zamrazilová, Jan Frait, Karina Kubelková, Jan Kubíček, Jan Procházka, Jakub Seidler) voted in favour of this decision.

Borrower-based measures

In the final part of the meeting, the Board discussed the risks connected with the residential property and mortgage markets. In the Financial Stability and Resolution Department’s presentation, it was said that activity was growing in both markets. The number of transactions and the number of loans negotiated were now both close to their long-term (ten-year) averages following a correction in 2022 and 2023. The affordability of housing for medium- and low-income households remained substantially worse in Prague and Brno in particular. Households would be exposed to these conditions in the year ahead as well, due to continued growth in residential property prices. Growth in credit risks in banks’ mortgage portfolios nonetheless remained subdued. Loans were currently being provided mainly to high-income households, which have sufficient financial reserves to absorb macrofinancial shocks even in the case of a higher ratio of debt service to net income. The volume of highly risky loans combining high LTV and DSTI/DTI ratios remained very low and was not a source of systemic risks. Banks themselves had been lending cautiously and had not even made full use of the permitted volume exemption in the case of the LTV ratio.

The Board agreed with the Department that from the financial stability perspective, the current scale of the credit risks was low and did not have the potential to endanger the robust position of the banking sector. The current calibration of the upper limits on credit ratios was thus serving its main purpose well and was not leading to faster accumulation of systemic risks. Jan Procházka said that credit risk indicators (the default rate and the NPL ratio) were currently at very low levels, and available analyses were not indicating that they would worsen. Jakub Seidler added that in the context of stronger growth on the mortgage market, it was positive that credit standards were not being relaxed on the market this year according to the CNB survey. Jan Frait said that in the current environment there was no spiral developing between property prices and debt financing of property purchases, and that the sources of price growth lay partly off the mortgage market. In his view, this was also evidenced by the fact that only a few hundred mortgage loans with highly risky characteristics had been provided in the first quarter of the year. A majority of the board members nonetheless emphasised the need to pay due attention to the rapid growth in property prices and to expand the range of analyses conducted in this area in the period ahead.

In the discussion about borrower-based measures, Eva Zamrazilová and Jan Kubíček noted that property price growth has a bearing on price stability, too. From the perspective of a central bank that is responsible for both financial stability and price stability, it was therefore necessary to view this issue in the broader context and, in pursuing objectives, think about the comprehensive setup of all available instruments that affect the residential property market. In this regard, they also drew attention to the ongoing structural changes, including the larger expected role of institutional investors in the market, which could push prices up further. Rising prices could in turn stimulate additional demand among households for buy-to-let apartments, which, further down the line, could generate risks to financial stability as well. It was therefore necessary to monitor the role of buy-to-let apartments in more detail in the period ahead and, in the event of systemic impacts, to respond by making a suitable change to the mix of macroprudential instruments.

In a related discussion of the effect of caps on income-based ratios (DSTI and DTI) on the rate of growth of property prices, it was said that this effect was generally limited at present (Jan Kubíček, Jan Procházka). The market was dominated by high-income households, whose ability to adapt to these measures was probably relatively high. At the moment, a change of calibration was thus likely to make conditions tighter for “normal” households, of which there were fewer on the market, without having any great effect on households driving the increase in buy-to-let demand (Eva Zamrazilová, Jan Kubíček, Jan Procházka). Such a change might also have some other unwanted side effects (Jan Procházka, Jakub Seidler).

The Board also briefly discussed the importance of the various borrower-based measures for keeping systemic risks low in different phases of the financial cycle. Jan Procházka said that in a situation where households were not becoming overindebted, he felt that LTV was the key ratio, especially as regards the resilience of the banking sector, as it limits potential losses given default. He regarded introducing an upper limit on the DSTI ratio as appropriate primarily in a low interest rate environment, as a marked rise in interest rates could greatly increase households’ debt service costs in the future. Eva Zamrazilová and Jan Kubíček agreed with this. They also expressed the opinion that a DSTI cap could also serve as a form of backstop in situations where there are concerns about the future evolution and materialisation of the baseline (expected) economic scenario.

After the discussion, the Board decided to leave the upper limit on the LTV ratio at 80% (90% for applicants under 36 years purchasing owner-occupied housing). All seven board members (Aleš Michl, Eva Zamrazilová, Jan Frait, Karina Kubelková, Jan Kubíček, Jan Procházka, Jakub Seidler) voted to leave the upper limit on the LTV ratio unchanged. The upper DSTI and DTI limits remain deactivated.

Author of the minutes: Miroslav Plašil, Financial Stability and Resolution Department