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Countercyclical capital buffer (CCyB)

Banks build up a countercyclical capital buffer in good times in order to draw it down in bad times when they experience unexpected losses. Národná banka Slovenska sets the CCyB rate according to the extent to which cyclical risks are increasing or declining.

Buffer rate for Slovak exposures

The CCyB rate has been set at 1% since 1 August 2020. This rate was confirmed by currently applicable decision from 22 January 2021. As from 1 August 2023 the CCyB rate will be 1.5%.

Buffer rates for foreign exposures

The buffer rates can be found on the webpages of the European Systemic Risk Board (ESRB) and Bank for International Settlements (BIS).

NBS has not issued any decision increasing the buffer rate for exposures in third countries (outside the European Economic Area), nor has it identified any third country for which such a decision would need to be issued.

The only non-EEA authority that has implemented a non-zero CCyB rate is the Hong Kong Monetary Authority, and this buffer also applies to Slovak banks’ exposures to Hong Kong.

Methodology

The evolution of risks is assessed in the quarterly Macroprudential Commentary.

  • Areas monitored
    • Credit market – whether credit growth is excessive
    • Private sector indebtedness – whether debt is sustainable
    • Real estate market – whether developments are in line with fundamentals
    • Banks’ profitability and solvency (capital adequacy) – whether the sector is sufficiently resilient to risks
    • Financial cycle – whether cyclical risks are increasing
    • Non-performing loans and credit losses – whether losses have already occurred or are still only expected

In the light of potential losses from such risks, the Bank Board of Národná banka Slovenska may decide to adjust the CCyB rate. The rate generally ranges between 0% and 2.5% in multiples of 25 basis points.

The CCyB must be made up of the highest quality capital – Common Equity Tier 1 (CET1).

The amount of capital that the CCyB ties up in a given bank depends mainly on the CCyB rate applied in Slovakia and the amount of the bank’s domestic exposures. If the bank has exposures to other countries, it must follow the CCyB rates applied in those countries and hold additional capital accordingly.

  • Indicators

    The Cyclogram captures financial cycle developments. It tracks risks in the credit market, risks in the economy, risks in the housing market, and credit losses.

    The Cyclogram-based Buffer guide indicates at what rate the CCyB should be set in the light of current risks.

    The overview of key indicators provides a detailed view of individual risks.

    In accordance with law, Národná banka Slovenska also publishes the Credit-to-GDP gap indicator and a benchmark buffer rate based on it. In the specific case of Slovakia, however, these have several statistical and technical limitations, and they are not taken into account in CCyB rate-setting decisions.

Legislation

The statutory framework for capital buffers comprises, for Slovak exposures, Sections 33a to 33e of the Banking Act and, for foreign exposures, Section 33f of the Banking Act. NBS sets the CCyB rate through secondary legislation in the form of decisions.

The values of the indicators published on the basis of Section 33g(6) of the Banking Act in accordance with Recommendation ESRB/2014/1 can be found in financial stability data.

Further information can be found in financial stability legislation.