Minutes of the CNB Bank Board meeting on financial stability issues on 12 September 2024

Present at the meeting: Aleš Michl, Eva Zamrazilová, Jan Frait, Karina Kubelková, Tomáš Holub, Jan Kubíček, Jan Procházka

The countercyclical buffer (CCyB) rate

The meeting opened with a presentation given by the Financial Stability Department on the CCyB rate. The financial cycle indicator was signalling a start to the expansionary phase of the financial cycle, although its level remained low. The rise in the indicator had so far been driven primarily by an increasing volume of new loans to households. Assuming that the CNB’s summer forecast materialised, the Department expected the indicator to continue to rise in the coming quarters. Previously assumed cyclical risks were still receding from banks’ balance sheets, mainly as a result of the repayment of loans amid growth in nominal income and relatively favourable economic outlooks. This had been reflected in a decline in the estimated buffer rate needed to cover unexpected credit losses and potential growth in risk weights on credit exposures to 1.26%. Based on an assessment of the current position of the economy in the financial cycle and an estimate of its evolution over the next two years, the Financial Stability Department recommended holding the rate at 1.25%.

The board members agreed that the financial cycle was at the beginning of the expansionary phase. Credit losses were not materialising significantly and the credit market was recovering gradually in this phase. The current rate was thus consistent with the position of the economy in the financial cycle and with its current projection.

Jan Frait agreed with the analysis of the position of the economy in the financial cycle and with the motion to maintain the rate at 1.25%. He said that the projected upward movement in the financial cycle partly reflected the CNB’s summer forecast, which seemed rather optimistic in the present light. In his opinion, the credit growth trend was likely to remain subdued in the Czech Republic and in some other EU countries. Tomáš Holub was in favour of leaving the rate at 1.25%, mainly because of the recovering mortgage market and with regard to the CNB’s previous communications. He said that the monitored indicators currently supported a rate close to the “standard” level of 1%.^[1] Jan Procházka agreed with holding the rate at its present level and noted that the ratio of new loans to households’ gross disposable income was indicating an only modest recovery in lending to households in real terms. He also mentioned the possible factor of advance drawing of mortgages and that the estimated of the path of the financial cycle could be more reliable in the following quarters. He also noted the new volumes of loans for consumption, which had been above the historical average in nominal terms for quite some time. Karina Kubelková was in favour of leaving the rate at the current level. Eva Zamrazilová said that in the present macroeconomic environment, the rate should be close to the “standard” level of 1%, but she would nonetheless support holding it at 1.25% for the time being. She also pointed to the elevated new loans for consumption in nominal terms and the need for a deeper understanding of its causes and potential risks. Jan Kubíček supported the motion to leave the rate at the current level. Aleš Michl had no further comments on the motion.

After the discussion, all seven board members present voted to keep the rate at 1.25% and the Board thus decided to maintain the CCyB rate for exposures located in the Czech Republic at 1.25%.

Author of the minutes: Štěpán Pekárek, Financial Stability Department

^[1] The buffer rate level at the start of the expansionary phase of the financial cycle, with no prior significant materialisation of credit losses.