ARTICLE
7 January 2019

Central Bank Of Cyprus Countercyclical Capital Buffer For The First Quarter Of 2019

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Elias Neocleous & Co LLC

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Elias Neocleous & Co LLC is the largest law firm in Cyprus and a leading firm in the South-East Mediterranean region, with a network of offices across Cyprus (Limassol, Nicosia, Paphos), Belgium (Brussels), Czech Republic (Prague), Romania (Budapest) and Ukraine (Kiev). A dynamic team of lawyers and legal experts deliver strategic legal solutions to clients operating in key industries across Europe, Asia, the Middle East, India, USA, South America, and China. The firm is renowned for its expertise and jurisdictional knowledge across a broad spectrum of practice areas, spanning all major transactional and market disciplines, while also managing the largest and most challenging cross-border assignments. It is a premier practice of choice for leading Cypriot banks and financial institutions, preeminent foreign commercial and development banks, multinational corporations, global technology firms, international law firms, private equity funds, credit agencies, and asset managers.
The countercyclical capital buffer (CCB) was introduced as part of the Basel III regime to help counter cyclicality in the financial system.
European Union Finance and Banking
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The countercyclical capital buffer (CCB) was introduced as part of the Basel III regime to help counter cyclicality in the financial system. Capital should be accumulated when cyclical systemic risk is judged to be increasing, creating buffers that increase the resilience of the banking sector during periods of stress when losses materialise. This will help maintain the supply of credit and dampen the downswing of the financial cycle. The CCB is also intended to dampen excessive credit growth during the upswing of the financial cycle.

Under the Capital Requirements Directive IV and Capital Requirements Regulation, which gave legal effect to the Basel III agreement in the EU, each member state has a designated authority which is responsible for setting the CCB rate in its jurisdiction. There is also a strong European element to the framework, with the European Systemic Risk Board having the power to issue guidance to national authorities on the implementation of the CCB framework.

In Cyprus, the Central Bank of Cyprus (CBC) is the designated authority responsible for setting the rate and the CCB rate applies to the total risk exposure amount of all licensed credit institutions and investment firms that provide the investment services of dealing on own account, underwriting of financial instruments or placing of financial instruments on a firm commitment basis, with the exception of small or medium-size investment firms (currently 60 in number) exempted by the CBC.

On 13 December 2018 the CBC announced the determination of the CCB rate for the first quarter of 2019, based on data up to 30 June 2018. The gap between the credit-to-GDP ratio and its long term trend based on both the broad and narrow (bank) credit definition is negative. Based on this, and taking into account the additional indicators assessed by the CBC, which include non-financial private sector indebtedness, banking sector resilience, the real estate market, the real economy and external imbalances, the CBC has determined that the CCB rate for the first quarter of 2019 will continue to be zero.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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