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 1, 2020

Eesti Pank decided on 23 March 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: 110%; its deviation from the long-term trend: –17 percentage points
  • The buffer rate: 0%
  • Reasoning for the buffer rate: given the widespread negative impact the spread of the COVID-19 virus will have on the Estonian economy and banking sector, Eesti Pank finds that it is appropriate to hold the countercyclical capital buffer for the banks at the rate of 0%. Eesti Pank does not expect to raise the buffer rate during the coming year.

Eesti Pank assesses the need for the countercyclical buffer once a quarter. The decision is mainly based on the growth of debt in the non-financial sector, but the growth has not been particularly fast in Estonia in recent years. Although borrowing by households was quite strong in the first months of 2020, corporate borrowing remained quite modest next to the growth in the economy. The banks have been quite conservative in setting the conditions for loans, and they have not loosened their lending standards.
Given the growth in credit and the factors that affect it, Eesti Pank has kept the countercyclical capital buffer rate at 0% since the buffer was introduced on 1 January 2016. Other capital buffer requirements, which have also been introduced for macroprudential purposes, the systemic risk buffer and additional buffers for systemically important institutions, have helped support the capitalisation of the banks.

Indicators and assessment for the countercyclical capital buffer rate

Assessments

Indicators


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: