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 loan growth.
During times of credit growth, they should create a reserve, on the contrary, when economic activity declines 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 reflected in a slowdown in the growth of loans, especially the riskier ones.
Bank 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 is ready to quickly reduce the reserve rate, or to release the reserve entirely.
The countercyclical capital reserve was introduced by the European CRD IV directive as a tool to increase the resilience of the financial system. The CNB announced the reserve ratio for the first time in autumn 2014.
CNB Vice-Governor Frait: High rates will stay longer
Economic
