Czech central bank cuts capital buffer to boost lending
Adds comment from Kubelkova in paragraph 8, background on mortgages in paragraph 9
PRAGUE, June 1 (Reuters) -The Czech central bank cut its countercyclical buffer rate for banks by 25 basis points to 2.25% on Thursday, the first cut since the height of the coronavirus pandemic in 2020.
The new rate applies from July 1 and means banks can lend more as they have to hold less capital against their loan books.
"The Bank Board is ready to lower the buffer rate gradually further if we see a continuation of the trend of cyclical risks naturally fading out of the banking sector's balance sheet," board member Karina Kubelkova said in a statement.
The central bank also deactivated the ratio of debt-servicing to income (DSTI) - one of its three mortgage market controls - giving banks the opportunity to lend more to more mortgage applicants.
The DSTI caps debt payments to 45% of net monthly income for most borrowers, but will stop applying from July, the central bank said.
The DSTI has been a drag at a time of high interest rates. The central bank raised its main rate to 7% last year and came close to another hike last month.
The Czech real estate market has started cooling after sharp price growth in recent years, as higher interest rates and the war in Ukraine have deterred buyers.
"It is precisely because monetary policy is so tight at the moment that we can afford to relax these upper limits of the loan criteria, otherwise we would not be able to do so," Kubelkova told as news conference.
In April, new mortgage lending fell 40% year-on-year after a 60% drop in March, according to the Czech Banking Association.
The bank left its two other mortgages controls unchanged. The loan-to-value ratio of collateral stays at 80% for most borrowers, while the debt-to-income ratio capping debt against net annual income stays at 8.5.
The bank said stress tests showed the banking sector would retain sufficient capital adequacy as a whole under both basic and adverse test scenarios.
Reporting by Jan Lopatka
Editing by Jason Hovet and Christina Fincher
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