Countercyclical capital buffer

Countercyclical capital buffer is intended to protect banks from for risk arising from the changes in the credit cycle. This capital buffer is introduced or increased in the period of significant credit growth, and is reduced or removed in the period of downward credit cycle. Namely, given the high credit growth, an obligation for banks to increase the available capital is introduced. Such obligation, on one hand improves banks' ability to cover credit losses which might arise from the high credit growth, while on the other hand reduces that growth, by increasing the credit costs. Amid cycle changes, the banks are released from the obligation to fulfill countercyclical capital buffer, which implies that they can use this capital buffer to cover credit losses which usually occur in the downward cycle phase, and at the same time the credit costs are reduced, which affect the volume of the credit demand. With this feature, the countercyclical capital buffer reduces the so-called procyclicality of the financial system.

The level of the countercyclical capital buffer is defined based on the so-called specific rate of the countercyclical capital buffer, which represents weighted average of the countercyclical capital buffer rates for banks' exposures to individual countries. Namely, pursuant to the Banking Law, the National Bank is authorized to prescribe different rates of countercyclical capital buffer for exposures to clients from different countries, including the Republic of Macedonia.

The manner for determining the rate of countercyclical capital buffer for banks' exposure to clients from the Republic of Macedonia and the specific rate of countercyclical capital buffer, as well as the manner for introducing and changing the rate of countercyclical capital buffer for banks exposure to clients from the Republic of Macedonia are specified in the Decision on the Methodology for determining the rate of countercyclical capital buffer for exposures in the Republic of Macedonia (Official Gazette of teh Repubhlic of Macedonia no. 26/17).

Based on the Banking Law and the Decision, starting from 1 June 2017, on a quarterly basis, the National Bank is required to determine the rate of countercyclical capital buffer for exposures in the Republic of Macedonia and publish its amount, together with the date of application, if it is higher than 0%.