“When making its decision, the Banking Council took into account the current position of the Czech economy in the financial cycle, the extent of accumulated credit risks in the balance sheet of the banking sector and the development of its vulnerability. At the same time, it took into account the noticeable increase in geopolitical and economic uncertainties, which create the potential for increased and faster materialization of cyclical risks accumulated in the financial system,” the CNB said.
The rate applies to all banks, savings and credit unions and securities dealers. The CNB sets the rate of this reserve quarterly, usually a year in advance. The countercyclical capital reserve is one of the measures of the EU directive on access to the activity of credit institutions and on the prudential supervision of credit institutions and investment firms (CRD IV).
Banks should create the reserve during times of credit growth. Conversely, in the event of a decline in economic activity accompanied by increasing credit losses, it should be used by banks to cover losses. The aim is to prevent the transfer of potential problems of financial institutions to the economy. The effect may be a slowdown in credit growth.
Source: EuroZprávy.cz by eurozpravy.cz.
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