Czech central bank plans capital surcharge for key banks

Mon Oct 21, 2013 12:00am EDT

* Czech central bank plans capital surcharges without phase-in period

* Says vast majority of banks can meet new requirements with current capital

* Plans 1-3 pct systemic risk capital surcharge for 4 banks

* Not planning counter-cyclical capital requirement in the next 2 years

By Jan Lopatka

PRAGUE, Oct 21 (Reuters) - The Czech central bank plans to slap additional capital requirements on four lenders key to the country's banking system but will not implement 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 following the financial sector crisis in recent years and will be implemented gradually as of 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 even 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.

It has also chosen the four most important banks that will have to set aside a "systemic risk buffer" worth an additional 1-3 percent of risk-weighted assets, also from some time next year, he said.

"We're not going at full throttle. We could demand an even higher level of reserves," Tomsik told Reuters and daily Hospodarske Noviny.

"We are not looking at this in a binary way, we have a graduated approach," he said of the systemic risk buffers.

Tomsik did not name the four banks that will have to hold the systemic risk buffer but said they would be revealed once the legislation is adopted.

The country's four largest banks are Erste's Ceska Sporitelna, KBC's CSOB, Societe Generale's Komercni Banka and UniCredit. The fifth is GE Money.

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 the next two years, order banks to create another reserve that may be required under the new rules, called the anti-cyclical buffer, which should be applied at times of faster credit expansion.

Czech banks have survived the crisis without any need for bailouts, thanks to their strong profitability and lack of investments into assets later labelled as toxic, such as securities backed by high-risk mortgages.

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 high-quality capital called Tier 1 at 17.3 percent, high compared with most European banking systems.

"We want to maintain the current capital adequacy in the banking sector. We do not want to allow it to fall from the current level only to rise again later," 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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