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 2, 2018

Eesti Pank decided on 11 June 2018 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: 117%; its deviation from the long-term trend: –18 percentage points
  • The buffer guide: 0%
  • Reasoning for the buffer rate: the growth in debt in the non-financial sector has remained slow, and indebtedness, which is the ratio of debt to GDP, has fallen in recent years, meaning there is no reason to raise the buffer rate at the moment. However, debt liabilities may grow faster in the future if the economy continues to grow fast and investment to increase. The risk remains that with wages continuing to rise fast and confidence remaining at a high level, enthusiastic borrowing by households could increase the indebtedness faster than forecast if real estate prices rise faster, and so could increase the cyclical risks. The corporate indebtedness could also start to grow strongly again with support from increasing economic activity and rising investment. For this reason Eesti Pank monitors the changes that could indicate a possible build-up of risks and can, if necessary, raise the countercyclical buffer rate above 0%.

Indicators and assessment for the countercyclical capital buffer rate

Assessments

Indicators

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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html pdf

 

Decrees of the Governor of Eesti Pank

Countercyclical capital buffer rates in other countries: