Czech central banker: mortgage risks remain, not planning stricter bank recommendations

PRAGUE, Dec 19 (Reuters) - The Czech central bank is not currently considering tightening mortgage lending recommendations for banks although risks re

PRAGUE, Dec 19 (Reuters) – The Czech central bank is not currently considering tightening mortgage lending recommendations for banks although risks remain in the market, Vice-Governor Vladimir Tomsik said on Tuesday.

The central bank announced on Monday that it would raise the countercyclical capital buffer rate that banks must meet to 1.25 percent from a current 0.5 percent, with effect from 2019, as it seeks to tame fast lending.

Laying out reasons for the decision in a commentary to be published in newspaper Hospodarske Noviny’s Tuesday edition, Tomsik said the move would not limit banks’ ability to lend.

“In the capital of the majority of banks there is, assuming an adequate dividend policy, still sufficient space for the increase of capital reserves, as well as for the growth of loan portfolios,” he wrote.

The countercyclical buffer is available to regulators throughout the European Union to have banks build reserves in good times to safeguard against economic swings. Only a handful of countries have placed this obligation on their banks.

Tomsik said the central bank would be prepared to cut the buffer without delay if unfavourable shocks appeared in the economy or if there was a significant downturn in lending.

The Czech economy posted growth of 5 percent in the third quarter. With the lowest unemployment in the EU helping boost wages, the lending market is growing strongly. This is especially true for mortgages, which have also seen strong demand because of low interest rates.

In the past year, the central bank has recommended banks tighten loan-to-value (LTV) ratios on mortgages, doing away with loans for 100 percent of a property’s value and making customers have a bigger downpayment.

Tomsik said the measures were starting to have the intended effect, evidenced by a halt to growth of new mortgage loans in the second quarter.

“Therefore in this moment we are not considering it necessary to tighten LTV limits or other recommendations. This, however, is not possible to interpret that we regard risks as falling,” he said.

Reporting by Jason Hovet; Editing by Catherine Evans

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