of 4 March 2021
on setting the countercyclical capital buffer rate for the Czech Republic n ° I / 2021
In accordance with Article 12o (5) of Law No. 21/1992 Coll., On Banks, as amended by Law No. 375/2015 Coll., (Hereinafter referred to as “Banking Law”) and Article 8al (5) of Act No. 87/1995 Coll., on credit unions and certain related measures and on the amendment of Act No. 586/1992 Coll. of the Czech National Council, on income taxes, as amended, as amended by Law No. 375/2015 Coll. (hereinafter referred to as “Law on Credit Unions”), the Czech National Bank, as the competent administrative body, hereby issues the following general provision:
I. In accordance with Article 12o, paragraph 3, of the Banking Law and Article 8al, paragraph 3, of the Law on Credit Unions, the countercyclical capital buffer rate for the Czech Republic is set at 0.50% of the total risk exposure amount in accordance with Article 92 (3) of Regulation (EU) No 575/2013 of the European Parliament and of the Council.
II. Banks and credit unions apply the rate referred to in point I for the purpose of calculating the combined cushion requirement from April 1, 2022.
In accordance with Article 12o, paragraph 3, of the Banking Law and Article 8al, paragraph 3, of the Law on Credit Unions, the Czech National Bank (hereinafter referred to as “BNC”) fixes the counter-cyclical capital buffer rate for the Czech Republic, taking into account the counter-cyclical capital buffer guide calculated in accordance with article 12o, paragraphs 1 and 2, of the Banking Act and article 8al, paragraphs 1 and 2 of the Law on Credit Cooperatives, the recommendations issued by the European Systemic Risk Committee (hereinafter referred to as “ESRB”) and indicators that may imply an increase in systemic risk.
In accordance with Article 12o, paragraph 1, of the Banking Law, Article 8al, paragraph 1, of the Law on Credit Unions and Article 9al, paragraph 1, of the Enterprise Law capital markets, the cushion guide calculation is based on the deviation of the credit-to-GDP ratio from its long-term trend – the credit-to-GDP gap. The credit-to-GDP ratio was 91.0% and the relevant deviation from the long-term trend was -1.6 percentage point in the third quarter of 2020. This value within the meaning of Article 12o, paragraph 1, of the Banking Law and Article 8al, paragraph 1, of the Law on Credit Unions corresponds to a benchmark countercyclical capital buffer rate of 0%. The additional gap, which is based on the recommendation of the ESRB (section B, article 2) and better reflects the specificities of the Czech economy, was 3.2 percentage points in the third quarter of 2020 and implies a benchmark rate of 0.75%.
In response to the recommendation of the ESRB, the NCB has repeatedly stressed in its publications (in particular the Financial Stability Report) that it does not consider the magnitude of the deviations referred to in paragraph 2 to be a reliable guide to determining the position of the national economy in the financial cycle and rate setting. The CNB favors an approach based on an overall assessment of indicators identifying the growth of systemic risks under article 12o (3) of the banking law and article 8al (3) of the law on cooperatives of credit.
The financial cycle indicator increased in the third quarter of 2020 both year-on-year and quarter-on-quarter. This increase is explained by the record volumes of new mortgage loans to households and the associated rapid growth in residential property prices, which can generate new risks in the balance sheets of the banking sector. Conversely, a gradual slowdown in credit growth was observed during the year for consumer credit extended to households and loans to non-financial corporations. Due to the flexible adjustment of part of the economy to current anti-epidemic measures and the implementation of support programs, there has so far been no large-scale materialization of the risks of previously accepted credit. Nonetheless, the continued economic decline has translated into an increase in the expected losses of banks, as evidenced by the increase in the cost of risk and the growth in the ratio of provisions for customer loans to total loans to customers. . Cyclically low risk weights on bank loan portfolios under the IRB approach, which are expected to return to higher levels in response to an economic slowdown, although more slowly than other economic indicators, also remain a source of systemic risk. A return of risk weights to levels observed at the start of the highly expansionary phase of the financial cycle would increase the absolute capital requirement and decrease the capital ratio. Estimating the magnitude of unexpected credit losses as well as the potential increase in risk weights implies an additional capital requirement of around CZK 55 billion, which would be fully covered by a cushion rate of 2.25%. . This estimate may be overestimated because it is affected by factors other than purely cyclical. Nevertheless, it confirms the need to continue creating a CCyB and indicates the need for a gradual return of the CCyB rate to the level covering the usual level of risk (considered by the CNB at 1%). This approach is in line with the previous CNB Bank Board communication from June 2020, according to which it was unlikely that the CCyB rate would be increased in the next 12 months (i.e. until June 2021) due to of the economic impacts of the coronavirus crisis.
Based on the above assessment, the board of directors of CNB Bank has decided to set the counter-cyclical capital buffer rate at 0.50%. Taking into account the relatively slow accumulation of new risks in the balance sheet of the banking sector and taking into account the always limited materialization of the risks taken in the past, the Board of the Bank of the CNB expects a gradual rise in the CCyB rate. up to the level covering the usual level of risk. The timing of this step will depend on clear signals of an economic recovery. On the other hand, in the event of a worsening economic situation, the BNC remains ready to immediately and fully release the cushion, in order to support the capacity of banks to grant loans to non-financial companies and households without interruption. The decisive signal for such a step would be cyclical risks accepted earlier materializing through credit losses and increased risk weights for IRB loan portfolios.
In accordance with Article 12x (1) of the Banking Law and Article 8au (1) of the Credit Cooperatives Law, this general provision is only announced in a manner that facilitates access to distance and takes effect on the day of its publication.
This provision will take effect on March 5, 2021.
This general provision was published on March 5, 2021.
 In accordance with recommendation 2014/1 of the ESRB (Recommendation of the European Systemic Risk Board of 18 June 2014 on the guidelines for setting countercyclical buffer rates), total credit refers to the value of all loans to the private sector (non-financial corporations, households, and non-profit institutions serving households) plus the volume of bonds issued by the domestic private sector. The 1995 Q1-2020 Q3 time series and the Hodrick-Prescott filter with a smoothing parameter (λ) of 400,000 are used to calculate the long-term trend in the credit-to-GDP ratio.
 The additional spread – the expansionary credit spread – is calculated as the difference between the current ratio of bank loans to gross value added of the non-financial private sector and the minimum level of this ratio reached in the last eight quarters.
 The methodological framework of the Czech National Bank for setting the countercyclical buffer rate is presented in the document The CNB’s approach to setting the countercyclical capital buffer.
 The annual growth rates of bank loans to households for housing and for consumption were 8.0% and 0.8% respectively in December 2020. Bank loans to non-financial corporations increased 0.3% on a year to year. year in December 2020.
 Cyclical factors are not the only factors affecting risk weights, so risk weights may not always reflect the latest economic developments only. This applies in particular to changes in banks’ models for calculating risk weights or to regulatory changes.
 According to the CNB estimate, the Czech economy entered the last strongly expansionary phase of the financial cycle in the second half of 2015.
 For example, regulatory changes concerning the calculation of capital requirements (implicit risk weightings).