December 18, 2017 / 10:50 AM / 9 months ago

UPDATE 1-Czech central bank lifts extra lending buffer for 3rd time

* Raises banks’ countercyclical buffer to 1.25 pct

* Says stress tests show banks remain resilient

* Sector’s capital ratio was 18.4 pct as of Sept 30 (Adds banking sector stress tests results)

By Robert Muller

PRAGUE, Dec 18 (Reuters) - The Czech central bank raised the sum domestic banks should set aside as a buffer against tougher times on Monday as it looks to tame fast lending growth while interest rates remain low and the economy soars.

The CNB raised the countercyclical buffer rate for domestic banks to 1.25 percent of outstanding loans with effect from January 2019 - its third increase in the rate since 2015.

The buffer is a supplementary reserve available to regulators throughout the European Union that is meant to safeguard against economic swings, but only a handful of countries have placed this obligation on their banks.

The CNB said in a separate release that stress tests showed the country’s banking sector remained strong, with capitalisation more than double the regulatory minimum, and would be able to withstand even a protracted recession.

The export-reliant economy is humming thanks to rising domestic demand from households, expanding by 5.0 percent year-on-year in the third quarter. Unemployment is the lowest in the European Union and wages rose 6.8 percent in the last quarter.

That has boosted demand for loans.

Lending rose 5.2 percent year on year in the 10 months to October, even as the central bank has started reversing its loose policy of recent years, lifting interest rates twice since August to 0.5 percent.

“A number of factors spoke in favour of the (buffer) increase. Rapid growth in bank loans, especially loans to households for house purchase and consumption, is continuing,” CNB Vice-Governor Vladimir Tomsik said.

“This ...is aimed not at stopping lending, but at creating a buffer for worse times in the current good times.”

Currently set at 0.5 percent of loans, the countercyclical buffer had already been due to rise to 1 percent next July.

Czech banks went through the global financial crisis without needing state assistance and their profits, made despite low interest rates, help them to maintain high capital ratios.

The country’s biggest lenders are Belgian group KBC’s CSOB, Austrian bank Erste Group’s Ceska Sporitelna, and French lender Societe Generale’s Komercni Banka.

Even in the adverse scenario - assuming a recession lasting 10 quarters with economic growth falling to minus 5 percent - the banking sector as a whole would remain well above the required capital level of 8 percent, CNB said.

However, nine banks representing 11.9 percent of the sector’s assets would have to raise 10.3 billion crowns ($472.74 million) to raise their capital to the required level.

$1 = 21.7880 Czech crowns Reporting by Robert Muller; Editing by Jason Hovet and John Stonestreet

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