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Rising real estate prices are a risk for the banking sector.

Banks are resisting the coronavirus crisis: CNB confirms banks' countercyclical capital buffer rate and mortgage limits

Kateřina Ostrejšová
26.Nov 2020
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2 minutes
Guvernér ČNB Jiří Rusnok.

Today, the Bank Board of the Czech National Bank discussed Risks to Financial Stability. At the meeting, it confirmed the setting of the banks' countercyclical capital reserve at 0.5% and also the limit for the provision of mortgage loans, the amount of which it maintained at 90%. At the same time, the Czech National Bank does not see the need to tighten the parameters for providing mortgages.

The banking sector kept up its resilience during the pandemic

The banking sector in the Czech Republic kept up a high resilience to unexpected changes during the COVID-19 epidemic, mainly due to government programs that prevented sudden surges of credit default.

"Our expectations regarding the high resilience of the domestic financial sector to the effects of the coronavirus crisis are confirmed. Thanks to the cushions and reserves created in good times, our banking sector is still able to provide loans to companies and households. "

said Governor of the CNB Jiří Rusnok. According to him, banks in the Czech Republic have not become a source of economic problems, but on the contrary, part of their solution. Loan losses are said to be felt, but financial stability will not be jeopardized. However, it is necessary for banks to maintain a careful approach, including in the area of ​​dividend payments.

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Venkovní pracovní schůzka.
Venkovní pracovní schůzka. Source:

Maintaining the rate of banks' capital reserve

The Czech National Bank kept the countercyclical capital buffer rate of all banks at 0.5%. However, in the event of a more unfavorable scenario, it is prepared to fully release this reserve. Conversely, if the coronavirus pandemic situation started to improve, the reserve rate will need to be gradually increased again.

The countercyclical capital buffer was first used at the end of 2015, when the CNB set it at 0.5%. The last time the rate changed was in June this year, when the Bank Board reduced the rate from one percent.

Housing loans broke records this year

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Žena vyndává platební kartu z peněženky.
Žena vyndává platební kartu z peněženky. Source:

The decline in economic activity and the deteriorating situation on the labor market have not yet been reflected in the development of the mortgage market. By contrast, new housing loans and mortgages were breaking records in the first nine months of 2020. However, the effects of the coronavirus epidemic can be expected to gradually materialize and weaken the housing loans, as well as rise real estate prices.

"Unfortunately, the spiral between real estate debt financing and the expectation of rising house prices is gradually coming into motion. However, we assume that mortgage lenders will continue to be largely cautious, even in the face of adverse and highly uncertain economic developments."

said Jan Frait, Director of the CNB's Financial Stability Section.

Rapidly rising real estate prices would worsen the income affordability of housing and increase the overvaluation of housing prices. The CNB estimates it at an average of 17%, with up to 25% in selected locations with a high percentage of investment housing.

Limits remain at 90%

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Žena platí u pokladny.
Žena platí u pokladny. Source:

The Bank Board therefore decided to keep the limit for the LTV mortgage indicator at 90%, with the possibility of applying a 5% volume exemption. At the moment, it does not consider it necessary to set limits on two other mortgage indicators - the amount of the mortgage expressed as a multiple of the net annual income and the share of the debt repayment in the monthly net income of the household.

"At this time, it is therefore not necessary to reintroduce the limits of indicators abolished in the spring, or to tighten other conditions for the provision of mortgages. However, we feel the need to point out again that above certain debt limits - eight times the annual net income and 40% of the net monthly income - we consider mortgages to be very risky,"

added Jan Frait.

Prodej funkcionalistické vily Praha - 360m
Prodej funkcionalistické vily Praha - 360m, Praha 8

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