Minutes of the CNB Bank Board meeting on financial stability issues on 6 March 2025

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

The countercyclical buffer (CCyB) rate

The meeting opened with a presentation given by the Financial Stability Department on the CCyB rate. The economy was in an expansionary phase of the financial cycle, which was expected to continue. The upward movement was being driven primarily by pure new loans to households. In real terms, activity in the loans to households market was approaching the long-term average, while that in the market for loans to non-financial corporations was still subdued. There would be a significant increase in the amount of refixing of mortgage loans at mostly higher interest rates this year and next year. According the Department’s analyses, however, this did not substantially increase the risks to the banking sector’s mortgage portfolio. Compared to the previous assessment, the estimated buffer rate needed to cover unexpected cyclical credit losses and the effect of growth in risk weights had risen only moderately to 1.47%. As the level of previously assumed credit risks in banks’ balance sheets was relatively stable and the credit standards applied to new loans were not significantly relaxed, the Department recommended holding the rate at 1.25%.

In the ensuing discussion, the board members agreed that the financial cycle was in an expansionary phase driven primarily by developments in the mortgage market. At the same time, newly accepted cyclical systemic risks were not rising above the usual level. The current CCyB rate was thus consistent with the position of the economy in the financial cycle and with its expected future evolution.

Eva Zamrazilová emphasised that refixed mortgage loans did not pose a cyclical risk in her opinion either. However, this did not mean the current refinancing conditions would not give rise to certain risks. At the same time, she mentioned the need to evaluate the concept of the standard CCyB rate^[1] in the context of the entire capital buffer framework, especially after the introduction of the SyRB. Jan Frait pointed to the specific and historically unusual situation where credit losses had not been occurring across the cycle for a long time but there was simultaneously concern about a significant deterioration in conditions in industry and about future economic headwinds. He said that quantitative methods were indicating a modest rise in cyclical risks and hence a potential future increase in the rate. However, there was no reason to rush to increase the rate, because positive real interest rates, along with still generally tight lending standards and borrower caution, were counteracting an overheating of the credit market. He went on to stress the importance of monitoring structural risks, which, in view of geopolitical developments, were generally on the rise, and drew attention to the difficulty of distinguishing between structural and cyclical risks. Jan Kubíček said that mixed signals were emanating from the economy. Growth in loans to corporations was on the slow side, lagging behind the equilibrium rate. However, loans to households had recovered significantly and, in his opinion, the mortgage market was overheating. He emphasised, though, that the CCyB was not an instrument capable of selectively reducing the potential risks in the given situation. He also pointed to the need to consider more closely the role of the standard CCyB rate in the overall approach to setting capital buffers. Karina Kubelková stated that the financial cycle was in an expansionary phase, but cyclical risks were not increasing significantly so far. She summarised that the economy was essentially in the same situation as in November 2024, and the present rate was not constraining lending activity, as banks had sufficient capital. She also emphasised the uncertainty surrounding the economy going forward. She regarded the risk of a delayed response to potential further growth in cyclical risks as negligible. Jan Procházka said that risks persisted in banks’ balance sheets, but they were not acute. The high amount of refixing of mortgage loans would constitute an autonomous tightening of monetary conditions and was also an argument for maintaining cautious buffer settings. He also drew attention to the expected brisk growth in real income, the low debt ratio, the weaker borrowing by non-financial corporations and the positive real interest rates. He concluded by saying that in the absence of clear reasons for further reducing or for increasing the rate, it was advisable to await further developments in the economy. Jakub Seidler said he viewed the CCyB as a buffer that should be created at times of substantial overleveraging in the economy, which was not the case at present. Growth in mortgage lending alone should not automatically imply an increase in the buffer rate. Given the low risk weights of secured housing loans, this would moderate the dynamics of the mortgage market only minimally. A higher CCyB rate could conversely have a negative effect on loans to non-financial corporations. These have higher risk weights, so the CCyB has a stronger effect on such exposures. He also mentioned that he preferred not to change the buffer rate too often, so he agreed with the motion to leave the rate unchanged. He concurred on the difficulty of distinguishing between cyclical and structural risks and discussed the relationship between the standard CCyB rate, the systemic risk buffer rate (SyRB) and the overall bank capital requirements. He therefore supported the motion to update the methodology for creating the CCyB, and in particular the standard non-zero CCyB rate, in the context of the introduction of the new SyRB rate. 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: Adam Kučera, 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.