The countercyclical capital buffer is a releasable macroprudential capital requirement used to mitigate procyclicality in bank lending and thus reducing risks to the stability of the financial system.

Exposure to cyclical systemic risks, which usually become apparent only after the cycle reversal, increases during the upward phase of the cycle. Countercyclical buffer (CCyB) build-up in the upward phase of the cycle ensures timely allocation of additional capital. This, in turn, enables credit institutions to absorb losses and maintain lending activity more easily in the downward phase of the cycle or in case of a sudden crisis.

The countercyclical capital buffer (CCyB) is governed by Articles 118 to 128 of the Credit Institutions Act within the range of 0 and 2.5%. The CNB assesses cyclical systemic risks and determines the required CCyB rate on a quarterly basis. As of 31 December 2023, the countercyclical buffer rate to be applied is 1%. As of 30 June 2024, the rate applied will increase to 1.5%.

Overview of decisions on the countercyclical buffer rate

Announcement on maintaining the countercyclical buffer rate for the Republic of Croatia of 1.5%

The domestic financial cycle remains in the mature phase of expansion, which is characterised by the ongoing robust lending to households, especially in the consumption financing segment. Housing loans continue to grow at stable rates with the residential real estate market recording a further fall in activity. Since the level of accumulated cyclical vulnerabilities remains elevated, the Croatian National Bank has assessed that the countercyclical buffer rate of 1.5% continues to be appropriate for maintaining banking system resilience to a possible systemic risk materialisation or sudden shocks. Relevant information in compliance with Articles 119 and 123 of the Credit Institutions Act is given below.

The indicators of the specific credit gap for the Republic of Croatia (Figure 1) and the composite indicator of cyclical systemic risk (Figure 2), combining a larger group of indicators associated with the developments in the financial cycle, remained elevated in the second quarter of 2024 (Table 1). Strong household lending, with an annual growth rate of 12% in November 2024 (transaction-based) was mostly fuelled by a further expansion of general-purpose cash loans whose annual growth rate stabilised at a high level and stood at 15.8% in November. Housing loans grew 9.1%, reflecting an increase in the average loan amount and a considerable decrease in the number of loans granted. Loans to non-financial corporations recovered slightly, having risen 5.5% on an annual level in November, mostly driven by loans to corporates in construction and trade. The residential real estate market saw a decline in activity, as evidenced by a further fall in the number of transactions and price growth deceleration to 10% on an annual level in the second quarter of 2024 from 17.3% in the last quarter of 2022.

As the designated macroprudential body, the CNB will continue to monitor regularly the evolution of cyclical systemic risks against the backdrop of domestic and global economic and financial developments and to pursue a macroprudential policy aimed at maintaining banking system resilience. For now, the countercyclical buffer rate remains 1.5%; however, any further deterioration of cyclical vulnerabilities in a favourable macrofinancial environment might call for the buffer’s increase. If needed, the CNB will make a timely adjustment of the countercyclical buffer rate in coordination with other monetary policy instruments so as to achieve the optimum combination of measures with regard to the systemic risks to financial system stability.

Table 1 Indicators of cyclical systemic risk and the associated benchmark countercyclical buffer rates for Q2/2024

Notes: Specific ratio values differ depending on the definition of credit (46.4% for a narrow definition of credit, which includes only domestic bank credit, and 61.5% for a broad definition). Differences in gap values arise from different definitions of gap (absolute gap is calculated as the difference while the relative gap is calculated as the ratio of the following variables: the credit-to-GDP ratio and its trend) and estimated statistical trends. The arrows indicate the direction of the change in relation to the value of indicators and benchmark rates from the previous quarter.
Source: CNB.

Figure 1 Range of credit gap indicators and affiliated benchmark CCyB rates

Figure 2 Composite indicator of the cyclical systemic risk (ICSR) and the affiliated range of benchmark CCyB rates

METHODOLOGY

Improvements in the methodology of countercyclical buffer identification and calibration in Croatia, MPD no.16, 2022

New Indicators of Credit Gap in Croatia: Improving the Calibration of the Countercyclical Capital Buffer, W-69, 2022

Introduction of the composite indicator of cyclical systemic risk in Croatia: possibilities and limitations, W-68, 2022

Augmented credit-to-GDP gap as a more reliable indicator for macroprudential policy decision-making, W-65, 2022