June 12, 2018 / 8:01 AM / in 14 days

Czech central bank raises countercyclical buffer to 1.50 pct

PRAGUE, June 12 (Reuters) - The Czech central bank (CNB) raised its countercyclical capital buffer for banks by 25 basis points to 1.50 percent on Tuesday to strengthen banks’ resilience to any deterioration in the economic cycle.

The increase will take effect on July 1, 2019.

The bank had raised the buffer twice since first setting a rate of 0.5 percent effective in 2017 to get ahead of a credit boom amid record low interest rates.

“This measure is motivated by banks’ increasing vulnerability to a deterioration in the economic situation and the need for them to create buffers for ‘worse times’,” the bank said in a statement.

“In the event of continued rapid credit growth, increasing risks associated with property purchase financing and rising vulnerability of the banking sector, the CNB stands ready to increase the rate further.”

The Czech Republic is one of a handful of European countries where banks must set aside capital under this buffer.

The central bank also introduced new indicators which banks need to follow when providing mortgage loans.

The Czech economy grew by 4.4 percent year-on-year in the first quarter, boosted by domestic demand. (Reporting by Robert Muller Editing by Jan Lopatka)

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