Text: Czech central bank: March 7 financial stability meeting minutes

Moneta Money Bank, A.s

22/03/2024 08:06

PRAGUE, March 22 (Reuters) - Following is the full text
of the minutes from the Czech central bank's (CNB) board meeting
on financial stability issues on March 7, released on Friday:
    
    Present at the meeting: Aleš Michl, Eva Zamrazilová, Jan
Frait (not present for the vote), 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. According to
the aggregate financial cycle indicator, the current degree of
cyclical risks accepted was close to the bottom of the cycle.
Based on its conditional projection, the Department expected the
financial cycle indicator to stay at low levels over the next
few quarters. The previously accepted cyclical risks in banks’
balance sheets were gradually diminishing, mainly as a result of
the repayment of loans amid growth in nominal income and, to a
lesser extent, through the materialisation of risks and growth
in risk weights on credit exposures. This was being reflected in
a gradual decline in the estimated capital needed to cover
unexpected credit losses and the potential growth in risk
weights. The Department recommended lowering the rate by 25 bp
to 1.75%, although it added that the results of quantitative
methods gave room for a reduction of as much as 50 bp. Assuming
a shallow recession followed by a sustained economic downturn,
more gradual risk materialisation over a relative long time
scale was likely in the current conditions. 
    The board members agreed that the economy was close to the
bottom of the financial cycle, credit losses were not
materialising significantly and that reducing the rate was
consistent with the gradual decline in the accumulated cyclical
systemic risks in banks’ balance sheets. There was also a
consensus that in the current situation there was a need to
monitor the potential switch in the nature of the systemic risks
to financial stability from cyclical to structural. The Board
would return to this issue at its meeting on financial stability
issues in June. At this meeting, it would assess the need to
respond to the structural systemic risks by introducing a
systemic risk buffer rate.
    Eva Zamrazilová agreed with the analysis of the position of
the economy in the financial cycle and with the proposed rate
cut. As regards the assessment of the impact of the phase of the
financial cycle on the real economy and the effectiveness of
macroprudential policy, she also discussed the potential
influence of the extent to which non-financial corporations are
financed by their foreign parent companies and by foreign banks.
Jan Frait agreed with the analysis of the position of the
economy in the financial cycle and with the proposed rate cut.
He emphasised the appropriateness of applying a conservative
approach in a situation where the accumulated risks were
receding only gradually, amid low materialisation of credit
losses. He praised the advanced methodological toolkit used to
determine the buffer rate and the long-term consistency of rate
setting with the original logic agreed in the Basel structures.
Jan Procházka agreed with the conclusions of the Department’s
analysis and was in favour of the proposed rate reduction. He
said that the current trend in the number of insolvent firms did
not testify to elevated materialisation of credit risk either.
He also discussed the positive effect of the growth in nominal
income on the quality of the banking sector’s credit portfolio.
Karina Kubelková stressed that the methodological approaches
used by the Department to determine the buffer rate were
conservative and provided a reliable estimate of the position of
the economy in the cycle in the medium term. She was therefore
inclined to lower the rate by the 50 bp indicated by the
quantitative methods. Jan Kubíček was also in favour of cutting
the rate by 50 bp. He drew particular attention to the estimates
of unexpected credit losses and growth in risk weights and,
given the conservative nature of the Department’s quantitative
methods for determining the rate, recommended adhering to them.
He also discussed the relationship between the evolution of loan
portfolio quality and the modest increase in the average default
rate on loans to non-financial corporations at the end of 2023.
Tomáš Holub pointed to the fact that, despite the partial
recovery of the credit market, the economy was in a very subdued
phase of the financial cycle, with only modest materialisation
of the accumulated risks and growth in risk weights. Given this
fact, along with the length of time the economy had been near
the bottom of the financial cycle and the conservative settings
of the methodological approaches used by the Department, he saw
room for reducing the rate by a further 50 bp. Aleš Michl
emphasised the appropriateness of being cautious in lowering the
rate. Given the only gradual decline in previously accepted
cyclical risks in banks’ balance sheets, he was in favour of a
25 bp cut.
    After the discussion, three board members – Aleš Michl, Eva
Zamrazilová and Jan Procházka – voted to lower the CCyB rate by
25 bp to 1.75%. Three board members – Karina Kubelková, Jan
Kubíček and Tomáš Holub – voted to lower the rate by 50 bp to
1.5%. 
    Given that the chair has the casting voting in the event of
a tie, the Board decided to lower the CCyB rate for exposures
located in the Czech Republic by 25 bp to 1.75% with effect from
1 April 2024.
    
    Amendment of the Recommendation on the management of risks
associated with the provision of consumer credit secured by
residential property
    In the second part of the meeting, the Financial Stability
Department submitted a proposal to amend the Recommendation on
the management of risks associated with the provision of
consumer credit secured by residential property. The proposal
concerned the provision on unsecured loans provided to
applicants. The maturity of unsecured consumer credit provided
to consumers that have consumer credit secured by residential
property should not exceed eight years. In view of the approval
of the government’s New Green Savings Programme, which involves
the provision of bank loans unsecured by property with
maturities extending beyond eight years, it was proposed to
insert an exemption for this programme into the Recommendation.
    All the board members present agreed with the proposed
revision of the Recommendation.
    

 (Reporting by Prague newsroom)
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