Czech central bank cuts capital buffer to boost lending

<html xmlns=""><head><title>UPDATE 1-Czech central bank cuts capital buffer to boost lending</title></head><body>

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


Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.