Czech National Bank in Na Příkopě Street in Prague.
Prague – The Banking Council of the Czech National Bank (ČNB) left unchanged the rate of the so-called countercyclical capital reserve to protect the credit market. The Central Bank informed about this in a press release. Currently, the rate is two percent, from April, according to an earlier decision of the CNB, it will rise to 2.5 percent.
The CNB stated that in its decision it took into account the current position of the Czech economy in the financial cycle, the extent of credit risks in the balance sheet of the banking sector and the development of its vulnerability. “At the same time, it took into account persistent uncertainties regarding further geopolitical and economic developments, which create the potential for increased and faster materialization of cyclical risks accumulated in the financial system,” she said.
The rate applies to all banks, savings and credit unions and securities dealers. The CNB sets the rate of this reserve quarterly, usually a year in advance.
Banks and other credit institutions are supposed to create a countercyclical reserve as protection against risks arising from excessive credit growth. in the event of a decline in economic activity accompanied by increasing credit losses, it should be used by banks to cover losses. The aim is to prevent the transfer of potential problems of financial institutions to the economy. The creation of a reserve can be manifested by a slowdown in the growth of loans, especially riskier ones.
Banking Board member Karina Kubelková said in November during the previous meeting on the countercyclical capital reserve that in the event of a worsening of the economic situation and the occurrence of significant credit losses, the CNB ready to quickly reduce the reserve rate, or to release the reserve completely.
The countercyclical capital reserve was introduced by the European directive CRD IV as a tool to increase the resilience of the financial system. The CNB announced the reserve rate for the first time in autumn 2014.