Countercyclical capital buffer (hereinafter – CCyB) aims at strengthening the capitalisation of credit institutions during the neutral and upward phases of the financial cycle so that they have sufficient loss absorption capacity in times of crisis. When risks materialise, full or partial release of the CCyB rate helps the credit institutions to continue providing of the financing to the economy, thereby reducing the duration of crises and mitigating their impact on the economy.
The CCyB rate is expressed as a percentage of the total value of the exposures to the Latvian residents in a range from 0% to 2.5% (in justified cases, a higher CCyB rate above 2.5% may also be set). The CCyB requirement must be met with Common equity tier 1 capital.
Pursuant to the Credit Institution Law, Latvijas Banka assesses the cyclical systemic risk on a quarterly basis and, where necessary, establishes or adjusts the set CCyB rate. On 18.12.2023 Latvijas Banka decided to start implementing an application of positive neutral CCyB approach. According to this approach, the CCyB rate is maintained at a certain base level above zero already in a standard risk environment or in the neutral phase of the financial cycle when the cyclical systemic risk is neither heightened nor significantly low. Latvijas Banka has set the appropriate CCyB base rate at 1%.
