Financial News: Czech Central Bank Raises Countercyclical Capital Buffer R

Czech Central Bank Raises Countercyclical Capital Buffer Rate

(RTTNews) - The Czech National Bank raised the countercyclical capital buffer rate on Thursday, citing strong lending activity, rising debt and increasing housing prices.

The CNB bank board decided to increase the countercyclical capital buffer (CCyB) rate by 25 basis points to 1.5 percent with effect from July 1, 2027, at its financial stability meeting.

The CCyB is aimed to boost the resilience of the banking sector to risks linked with fluctuations in lending activity and enable them to give loans to households and businesses during a recession or a period of financial crisis.

The decision was motivated largely by strong and broad-based lending activity, an increase in household and corporate debt and ongoing growth in apartment prices, which is fueling a further build-up of cyclical systemic risks associated with the growth phase of the domestic financial cycle, the central bank said in a statement.

The bank left the rules for mortgage lending and the systemic risk buffer rate unchanged.

"Despite persistent global uncertainties, a further increase in cyclical risks in the domestic financial sector has been observed," CNB Bank Board member Jakub Seidler said. "This has been driven mainly by broad-based lending activity, which, according to the latest forecast, is expected to continue in the period ahead."

"In such an environment, we consider it necessary to slightly increase the countercyclical capital buffer rate in order to maintain the high resilience of the domestic banking sector," Seidler added.

The bank retained the systemic risk buffer rate (SyRB) at 0.5 percent to ensure sufficient resilience of banks to structural systemic risks arising from global uncertainties. The SyRB is intended to enhance the capitalization of the banking sector and increase its resilience to adverse shocks.

The housing and mortgage sector in Czechia is currently running hot with residential property prices rising nearly 10 percent in 2025 and the number as well as the volume of new mortgages exceeding their long-term averages in the first quarter of this year.

Hence, the central bank kept the upper limit on the loan-to-value (LTV) ratio unchanged at 80 percent. The LTV ratio for applicants under 36 years was retained at 90 percent.

"We expect the impact of the recently introduced LTV and debt-to-income (DTI) limits on investment mortgages to start materializing, helping to curb the emergence of excessive risks in banks' mortgage portfolios," Seidler said.

The bank also said that stress tests showed that the banking sector is well capitalized and the financial system remains resilient to adverse economic developments.

In May, the CNB left the benchmark interest rate - the two-week repo, at 3.50 percent, as expected, citing the need for tight monetary policy amid rising inflationary pressures that stem from a surge in energy costs due to the Middle East conflict.

The central bank expects inflation to average 2.2 percent this year and 2.4 percent next year. The economy is forecast to grow by 2.5 percent this year and 2.7 percent next year.

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