The countercyclical capital buffer is intended to protect the banking sector against losses that could be caused by cyclical systemic risks increasing in the economy. Countercyclical capital buffers require banks to hold capital at times when credit is growing rapidly so that the buffer can be reduced if the financial cycle turns down or the economic and financial environment becomes substantially worse. Banks can use the capital buffers they have built up during the growth phase of the financial cycle to cover losses that may arise during periods of stress and to continue supplying credit to the real economy.

Eesti Pank has been given the responsibility for setting the levels for the countercyclical capital buffer in Estonia. Eesti Pank bases its assessments of the capital buffers and their levels on the principles agreed by the European Union in the Capital Requirements Directive and also considers the specific requirements of the Estonian economy and financial system.

Eesti Pank assesses the need for the countercyclical buffer and decides on the rate for it once a quarter.

Quarter 2, 2020

Eesti Pank decided on 17 June 2020 to keep the countercyclical capital buffer rate for credit institutions at 0% of the credit risk exposures located in Estonia.

  • The applicable countercyclical capital buffer rate: 0%
  • The standardised credit-to-GDP ratio: 108%;its deviation from the long-term trend: -15 percentage points
  • The buffer guide: 0%

Reasoning for the buffer rate: given the widespread negative impact the spread of the COVID-19 pandemic will have on the Estonian economy and banking sector, Eesti Pank thinks that it is appropriate to hold the countercyclical capital buffer for the banks at the rate of 0%. The sharp increase in uncertainty has reduced lending and borrowing and the reduced capacity of borrowers to pay makes it probable that loan losses will increase. Eesti Pank does not currently consider it likely that the buffer rate will be raised this year.

Indicators and assessment for the countercyclical capital buffer rate

Assessments

Indicators

Quarter 2, 2020.pdf
Quarter 1, 2020.pdf
Quarter 4, 2019.pdf
Quarter 3, 2019.pdf
Quarter 2, 2019.pdf
Quarter 1, 2019.pdf
Quarter 4, 2018.pdf
Quarter 3, 2018.pdf
Quarter 2, 2018.pdf
Quarter 1, 2018.pdf
Quarter 4, 2017.pdf
Quarter 3, 2017.pdf
Quarter 2, 2017.pdf
Quarter 1, 2017.pdf
Quarter 4, 2016.pdf
Quarter 3, 2016.pdf
Quarter 2, 2016.pdf
Quarter 1, 2016.pdf
Quarter 4, 2015.pdf

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Decrees of the Governor of Eesti Pank

Countercyclical capital buffer rates in other countries: