The Czech central bank has increased its efforts to cool the housing market.
Concerned that rapidly rising house prices may spiral out of control and hurt lenders, the central bank is planning to increase banks’ counter-cyclical capital requirements.
Despite the Czech Republic having one of Europe’s lowest levels of housing loans, with Czech mortgages representing a much smaller share of the economy than in other western nations, the central bank (CNB) will be increasing its counter-cyclical buffer by 0.5% to 1% from July 2018.
“Home loans represent the biggest source of risk for the stability of our banking industry,” commented governor Jiri Rusnok.
“We need to use these good times to create reserves that will allow the banking sector to function without problems in worse times as well.”
Apartment prices in the Czech Republic rose by 15% last year, fuelled by a combination of low interest rates and broader economic growth. Meanwhile, the amount of new mortgage loans provided in 2016 was almost three times the amount provided in 2009.
“Credit providers should abide by the CNB’s recommendations just like skiers follow the ten golden rules for keeping safe on the slopes – you cannot just plunge headlong down the slope thinking things will somehow work out,” Rusnok is quoted as saying.
The CNB also published the results of regular stress tests, saying that the nation’s banks remained highly resilient to potential economic shocks. Under an adverse test scenario of a protracted recession and deflation, the industry would require a combined capital injection of 12.5 billion koruna (£420 million), or 0.3% of gross domestic product.