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Czech central bank cuts countercyclical buffer rate, sets systemic risk charge

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Updates throughout with details on stress tests, overall buffer rates, countercyclical outlook

PRAGUE, June 6 (Reuters) -The Czech National Bank (CNB) will cut banks' countercyclical capital buffer rates and introduce a systemic risk buffer, it said on Thursday after a financial stability meeting.

The central bank said it would cut the countercyclical capital buffer rate applied to banks by 50 basis points to 1.25% from July. At the same time, it decided to set a systemic risk buffer at 0.5%, taking effect on Jan. 1, 2025.

Capital buffers for banks will thus remain at their overall level, the bank said.

The bank left its sector rules for mortgage lending untouched after easing some aspects last November.

The mortgage and property markets are seeing a gradual recovery amid a drop in lending rates after high borrowing costs cooled activity in the past few years.

The bank is leaving upper limits on loan-to-value (LTV) ratios for lending at 80% and 90%, the latter for younger borrowers. But it said it expanded its recommendation to cover all consumer credit lending for housing.

"We can also see demand on the market for non-mortgage housing loans for reconstruction and energy-saving measures," central bank board member Karina Kubelkova said.

"With effect from October, we will recommend that lenders assess with increased caution whether clients with these loans are taking on excessive risks relative to their income."

The bank said its decision to lower the countercyclical rate, which it has been reducing since last year, took account of declining cyclical risks in the banking sector's balance sheet.

With risks unlikely to change, it said, the buffer rate was expected to remain stable over its latest outlook period.

In its stress testing, the bank said the banking sector would meet capital requirements in both its baseline and adverse scenarios in stress tests, although the latter would hit bank capitalisation.

"Stress tests have indicated that the Czech financial sector remains resilient to adverse economic developments, thanks partly to the capital buffers applied," the bank said.

Reporting by Jason Hovet and Jan Lopatka


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