June 14, 2017 / 5:00 PM / a month ago

Komercni Banka will meet higher capital buffer after "surprise" increase

3 Min Read

PRAGUE, June 14 (Reuters) - Czech lender Komercni Banka will be ready to meet higher capital requirements next year, its chief financial officer said on Wednesday, after the central bank decided this week to make banks put more aside in case of hard times.

Jiri Sperl said the bank would continue to target its capital adequacy around 50-150 basis points above the regulatory minimum but declined to say whether the higher capital needs would impact the bank's dividend payouts, which have already been scaled back due to regulatory pressures.

The Czech National Bank (CNB) decided on Tuesday to double the counter-cyclical buffer rate for banks to 1.0 percent as of July 2018 due to rapid credit growth. The move comes after it tightened recommendations for banks to limit the size of mortgages.

Komercni Banka's minimum capital requirement will rise to 15.9 percent next year with the increase. It reported a level of 15.7 percent in the first quarter.

Sperl said in an emailed statement to Reuters that the central bank's decision was a surprise.

"The increase was rather surprising as it followed shortly after the recent CNB’s measures to curb mortgage growth entered into force, not allowing time to evaluate impacts of these previous measures, and given that the capital requirements for Czech banks have been already high in the context of the European Union," Sperl said.

Czech lending growth is close to the fastest since 2009 as record low interest rates spur demand, especially in housing, where low supply and cheap mortgages have driven up prices on new apartments in Prague by a fifth in the past year.

Sperl said Komercni Banka, majority owned by France's Societe Generale, would continue in plans to reinforce its capital through so-called Tier 2 component. He also said the counter-cyclical buffer increase would affect all lending.

"It effectively increases the cost not only of residential mortgages, but also for business investments as well as for financing of a new infrastructure construction," he said. (Reporting by Jason Hovet; Editing by Elaine Hardcastle)

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