The National Bank of Slovakia become the first central bank in the Eurozone to apply a countercyclical capital buffer on July 26.
From August 2017, banks active in Slovakia will need to keep the equivalent of 0.5% of risk-weighted assets as part of their regulatory core capital requirement, in order to make them better prepared for economic downturns.
The move suggests the NBS sees rising risks to the economy and the banking sector. The Eurozone is nervously eyeing Italy's efforts to rescue its lenders. Unicredit, which is reportedly mulling sales in the Visegrad region in a bid to raise capital, operates a Slovak unit.
"Most banks' liabilities come from their creditors, including deposits of households and companies. Meanwhile, capital, i.e. a bank's equity, belongs to its owner. Only the bank's capital is able to absorb losses," said Marek Licak, director of the NBS's Macroprudential Policy Department, according to TSAR. "The higher capital, the better the bank is able to cope with losses. This makes the bank safer. A better capitalised banking sector is more stable and better able to provide loans."
Those banks already struggling are not obliged to meet the requirement. All those in good condition have to comply with the requirement; dividends and bonuses could be blocked if not.
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