financial stabilitymacroprudential policy

Countercyclical capital buffer

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. Raising the countercyclical capital buffer requires banks to add 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 built up to cover losses that may arise during periods of recession and to continue supplying credit to businesses and households.

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

The countercyclical capital buffer in Estonia has two components, which are a base requirement that is generally held unchanged at a steady rate, currently 1%, and a cyclical component that is added to the base requirement if the cyclical risks from rapid growth in the debt of companies and households are increasing.

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

The countercyclical capital buffer requirement in Estonia

Buffer rate

Applies

1.5%

from 01.12.2023

1%

07.12.2022–30.11.2023

0%

01.01.2016–06.12.2022

 

Quarter 3, 2026

Eesti Pank is maintaining the countercyclical capital buffer for the banks at the level of 1.5%.

The reasoning for the buffer rate: there has been no additional broadly based increase in cyclical risks in recent quarters. The growth in debt in the non-financial sector has been slower than current nominal economic growth and than its long-term average. Developments in real estate prices do not indicate any further substantial increase in cyclical risks either. The growth in bank lending remains fast though, with housing loans to households and bank loans to real estate companies growing particularly fast. This indicates that cyclical risks have not diminished, but have become concentrated in real estate and related activities. Eesti Pank currently considers it appropriate to maintain the countercyclical buffer rate at 1.5%.

  • The applicable countercyclical capital buffer rate: 1.5%
  • The gap between the growth in debt and the growth in long-term nominal GDP: -3.7 pp; the gap between the combined growth in bank loans and foreign debt and the growth in long-term nominal GDP: -4.2 pp
  • The debt-to-GDP ratio: 119% (change in the quarter -3.2 pp, change over the year -1.5 pp)
  • The buffer benchmark rate: 1%

 

Indicators and assessment for the countercyclical capital buffer rate


Decrees of the Governor of Eesti Pank

Countercyclical capital buffer rates in other countries:

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