UPDATE 2-Czech central bank plans extra capital reserve for key banks
* Czech central bank plans extra capital cushions without phase-in period
* Says most banks can meet new reserve requirements with current capital
* Plans added 1-3 pct systemic risk capital buffer for 4 banks
By Jan Lopatka
PRAGUE, Oct 21 (Reuters) - The Czech central bank plans to slap extra capital requirements on four core lenders but will not activate all capital buffers possible under a new European regulatory framework, a central banker said.
New capital rules have been adopted by the European Union to boost bank defences breached during the financial crisis. They will be phased in from next year.
Under the rules, all banks will have to hold capital in excess of the current 8 percent of risk-weighted assets, and national regulators have the right to make selected banks hold more.
The Czech central bank will place a mandatory 2.5 percent additional capital conservation buffer on all banks without any phase-in period next year, as soon as required legislation takes effect, Vice-Governor Vladimir Tomsik said.
The four most important banks will have to set aside a "systemic risk buffer" worth an additional 1-3 percent of assets, also from next year, he said, without naming the banks.
The Czech commercial banking sector has weathered the financial crisis without financial aid, thanks to strong profitability and a lack of investments into assets viewed as toxic, such as securities backed by high-risk mortgages.
Erste's Ceska Sporitelna, UniCredit and Societe Generale's Komercni Banka said they had been selected to set up the extra buffer. CSOB said it expected to qualify as well.
"We're not going at full throttle. We could demand an even higher level of reserves," Tomsik told Reuters and daily Hospodarske Noviny.
Sporitelna said its systemic risk buffer would be at the upper boundary of the central bank's requirement at 3 percent, and Komercni said its buffer would be 2.5 percent.
The buffers will have to be covered by the highest quality capital, called Common Equity Tier 1.
Tomsik said the central bank will not, at least for two years, order banks to create another reserve that may be required under the new rules, called the counter-cyclical buffer, which should be applied at times of faster credit expansion.
The "vast majority" of banks representing a dominant part of the banking sector will be able to cover the new requirements from their existing capital. In case more capital is needed, it can be built up gradually by retaining profits, Tomsik said.
The average capital adequacy ratio in the banking sector was 17.6 percent in June, with Tier 1 capital at 17.3 percent, high compared with most European banking systems.
"We want to maintain the current capital adequacy in the banking sector," Tomsik said.
Komercni Banka's Chief Operating Officer Pavel Cejka told Reuters last month he expected to maintain the bank's dividend payout ratio of 60-70 percent of profit under the anticipated new rules, but the new regulations could become a burden if the bank's loan portfolio expands substantially in the future.
The central bank said it would frequently re-evaluate the applied capital requirements.
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