The countercyclical capital buffer is intended to protect the banking sector against losses that could be caused by cyclical systemic risks. Countercyclical capital buffer requirement requires banks to add capital at times when credit is growing rapidly so that the buffer can be reduced when the financial cycle turns. Banks can use the additional 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 nature of the Estonian economy and credit cycle.

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

Quarter 1, 2019

Eesti Pank decided on 25 March 2019 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: 114%; its deviation from the long-term trend: –15 percentage points
  • The buffer guide: 0%
  • Reasoning for the buffer rate: the rate of growth in debt in the non-financial sector has increased, but it remains below nominal economic growth for the current year and the long-term average nominal growth. Gross debt has grown faster because companies have borrowed more, which was partly because of some increase in investment. The growth in new loans to households slowed in the second half of 2018 and the residential real estate market continued to develop at a gentle pace. The growth in bank loans and leases has been supported in recent years by demand-side factors. The banks have not eased their lending standards and loan margins rose slightly in 2018. This development does not indicate any major imbalance in the credit market, though the relatively good state of the economy and low interest rates mean the risk remains of excessive borrowing that could increase the risks from the credit cycle. For this reason Eesti Pank monitors the growth in debt and indicators that affect it, and can if necessary raise the countercyclical capital buffer rate above 0%.

Indicators and assessment for the countercyclical capital buffer rate

Assessments

Indicators

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: