Banks to accumulate two-times higher countercyclical capital buffer
From 30 June 2019, domestic banks will be subject to a 1% countercyclical capital buffer (CCyB) rate, as set a year ago by the Board of the Bank of Lithuania. Such a decision was taken in view of the recent financial and economic trends as well as credit and real estate (RE) market developments.
“Although lending for house purchase has accelerated, we found no significant imbalances in the country’s financial system. Nonetheless, given the economic upturn and profitable banking performance, banks should start increasing their resilience buffers to prepare against potential shocks in the future. To this end, we continue our efforts to strengthen their capital position,” said Tomas Garbaravičius, Member of the Board of the Bank of Lithuania.
The main purpose for applying this financial stability instrument is to ensure that the banking sector holds a sufficient capital buffer to cover potential losses in case of cyclical systemic risk or during an economic downturn.
The Bank of Lithuania revises the CCyB rate on a quarterly basis in view of the credit and RE market situation. The latest credit and RE market analysis points to no significant imbalances in the financial system, therefore, on 25 June 2019, the Board of the Bank of Lithuania took a decision to leave the CCyB rate unchanged at 1%.
The decision basis for setting the CCyB rate is available here.