Text: Czech central bank: minutes of Sept 14 meeting on financial stability issues

Moneta Money Bank, A.s

29/09/2023 08:00

PRAGUE, Sept 29 (Reuters) - The following is text of the
minutes of the Czech National Bank's (CNB) Sept. 14 meeting on
financial stability issues:
    
    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. According to
the aggregate financial cycle indicator, the current degree of
cyclical risks accepted was low. Based on its conditional
projections, the Department expected the economy to stay close
to the bottom of the financial cycle over the next few quarters.
The accumulated cyclical systemic risks taken on during the
preceding expansionary phase of the financial cycle were
meanwhile slowly receding from banks’ balance sheets. This was
reflected in a gradual decline in the estimated capital needed
to cover unexpected credit losses and the potential growth in
risk weights on credit exposures. The Department therefore
recommended lowering the rate by 25 bp to 2%.
    The board members agreed that, against the background of the
economy switching to a significantly subdued phase of the
financial cycle, credit losses were not materialising and that
reducing the rate was consistent with the gradual decline in the
accumulated cyclical systemic risks in banks’ balance sheets.
    Karina Kubelková welcomed the refinements made to the
methodological approaches used by the Department to determine
the buffer rate and the fact that the results of quantitative
methods were consistent with the Department’s proposal. Based on
the Department’s recommendation, and having discussed the matter
with the Supervision Department, she supported the proposed rate
reduction. Jan Procházka viewed a rate cut as an appropriate
response in a situation where the financial cycle was close to a
trough and the cyclical risks were gradually decreasing without
credit losses materialising significantly. He also mentioned the
effect of restrictive monetary policy, which would probably
continue to depress the financial cycle next year, thus creating
enough time for the buffer to be increased if necessary. Jan
Kubíček agreed with the proposal and discussed the reasons for
growth in loans with elevated credit risk. Tomáš Holub
considered a rate reduction to be a logical consequence of the
position of the economy in the financial cycle, which he saw as
key to determining the buffer rate. He noted the historically
low level of the financial cycle indicator and the distance of
the current buffer rate from the standard rate. In this context,
he saw room for reducing the rate further in the future if the
financial cycle were to remain subdued. He also drew attention
to the complex nature of the factors affecting risk weights,
which were currently a significant component in determining the
rate using quantitative methods. In his opinion, the present
relatively low risk weight level was not necessarily linked
entirely with the past expansionary phase of the financial cycle
but might also suggest an upward trend in loan portfolio
quality. Eva Zamrazilová regarded the arguments made by the
Department as convincing and discussed the possible risks to the
property development sector signalled by a number of market
participants. Jan Frait mentioned the absence of credit losses
amid slowing economic activity. In his view, this contradicted
the observed historical relationships, and he was convinced that
credit losses could materialise later on. However, the banking
sector was prepared for any losses, as he regarded the present
capitalisation and profitability as conducive to the sector’s
stability. He therefore saw a need to take the receding cyclical
systemic risks into account and was in favour of the proposed
rate cut. At the same time, in response to the persisting
geopolitical risks and the related economic and financial risks,
he pointed to the need to discuss the approach to setting the
standard buffer rate at future meetings on financial stability.
    After the discussion, all the board members present voted to
lower the CCyB rate for exposures located in the Czech Republic
by 25 bp to 2% with effect from 1 October 2023.
    

 (Reporting by Prague newsroom)
 ((prague.newsroom@thomsonreuters.com))