PRAGUE (Reuters) – The Czech National Bank cut the countercyclical capital buffer rate for banks on Thursday for the second time since the end of March, seeking to bolster a sector key to reviving an economy hit by the coronavirus outbreak.
The central bank also eased some mortgage lending recommendations for banks but said the crisis so far had not hit property prices, although their decline could come in the coming quarters given the economic situation.
The central bank has forecast a sharp 8% contraction in the economy this year, followed by a 4% recovery in 2021, after the global outbreak led to the shutdown of much of the economy for months to stem the spread of the new virus.
The central bank, as part of a financial stability review, said the banking sector remained robust thanks to capital buffers and surpluses.
The bank cut the countercyclical capital buffer rate to 0.5% from 1%, with effect from July, and reiterated it was ready to release the buffer fully if needed.
The Czech Republic was among a handful of European countries that had the buffer in place going into the crisis. It was designed to safeguard the sector against economic swings, growing in good times while falling in worse.
Central bank Governor Jiri Rusnok said the bank was not rushing to cut the buffer to zero yet because banks still had sufficient capital.
The bank also ended a mortgage lending requirement setting a limit on debt-service-to-income levels for borrowers, although it maintained a loan-to-value limit of 90% due to property prices still being overvalued.
It said the overvaluation of apartment prices stood at 15–25% at the end of 2019.
(Reporting by Jason Hovet and Robert Muller; Editing by David Goodman and Alex Richardson)
