The HNB has raised the countercyclical capital buffer (CCyB) rate from 0 to 0.5% due to the continued accumulation of cyclical systemic risks amid economic recovery following the crisis caused by the pandemic, the growth in the prices of residential real estate and the pickup in lending activity. The new rate is to be applied as of 31 March 2023.
This is the first time the central bank has increased the CCyB rate.
The aim of this instrument is to counter procyclicality in bank lending and mitigate risks to the stability of the financial system. Since its introduction in 2015, the CCyB rate for all credit institutions in Croatia stood at 0%.
The central bank said that the Croatian economy was currently in an upward phase of the financial cycle, when exposure to cyclical systemic risks grows. Such risks usually become apparent only after the cycle reversal.
The HNB made the decision in response to the continued accumulation of cyclical systemic risks, in particular the rise in residential property prices. The purpose of the measure is to ensure timely allocation of additional capital in an effort to strengthen the resilience of credit institutions to possible losses associated with exposure to cyclical systemic risks in the downward phase of the financial cycle or in case of a sudden crisis.
The HNB warned that residential real estate prices had risen annually by 9% in the third quarter of 2021, growing faster than both income and rental costs. It expects the strong demand for housing loans, backed by a new round of housing subsidies, to continue this year.
It noted that the Croatian banking sector has ample capital headroom above the current regulatory capital requirements as the total capital ratio of the banking system stood at 25.6% at the end of 2021, being among the highest in the European Union.
The Croatian Banking Association (HUB) said that the banks would comply with the regulator’s decisions and that as a result of the higher CCyB rate they would have an additional amount of capital which the regulator could release if necessary.
The HUB said it had not noticed any risks to the stability of the financial system given that the Croatian banking system is among the best capitalised systems in the world and total household indebtedness is still relatively low.
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