COUNTERCYCLICAL
CAPITAL BUFFER
30 March 2016
Banco de Portugal decided that the countercyclical buffer rate for credit
exposures to the domestic private non-financial sector remains at 0 per cent
of the total risk exposure amount, with effect from 1 April 2016.
This decision is based on the overall assessment of a set of financial and macroeconomic indicators1:
Chart 1 – Basel gap and additional credit-to-GDP gap3
50
Both measures of the credit-to-GDP gap (Basel gap and
40
additional credit-to-GDP gap) decreased further in the third
30
quarter of 2015, thus remaining in negative territory. This
20
10
percentage points
Credit-to-GDP gap has further declined
means that the credit-to-GDP ratio is still below its long-term
Upper threshold: 10 p.p.
0
Lower threshold: 2 p.p.
-10
trend, providing no evidence of excessive credit growth. The
additional credit-to-GDP gap is presently at a level of -7.9 p.p.,
-20
which compares to -6.7 p.p. in the second quarter of 2015. In
-40
addition, the Basel gap decreased from -33.7 p.p. to -36.6 p.p.
1982 Q4
1984 Q2
1985 Q4
1987 Q2
1988 Q4
1990 Q2
1991 Q4
1993 Q2
1994 Q4
1996 Q2
1997 Q4
1999 Q2
2000 Q4
2002 Q2
2003 Q4
2005 Q2
2006 Q4
2008 Q2
2009 Q4
2011 Q2
2012 Q4
2014 Q2
-30
Crisis periods
Basel gap
Additional credit-to-GDP gap
Sources: BdP, INE and BdP’s calculations. Last observation: 2015 Q3.
since the previous quarter. For these values of the gap, the
BCBS methodology suggests that the benchmark buffer rate
should be set at 0 per cent of the total risk exposure amount2.
The decrease in the credit-to-GDP gap has been driven by a
decrease in the credit-to-GDP ratio, due to both declining
Chart 2 – Ratio between the one year difference in bank credit
and the five year moving average of GDP4
outstanding credit to the private non-financial sector and
increasing nominal GDP.
Better prospects for bank credit
100
Another early indicator of credit imbalances is the ratio
60
between the one year absolute difference in bank credit and
40
the five year moving average of GDP. This ratio has been in
20
negative territory since 2010, reflecting the contraction in bank
0
credit. Still, in the third quarter of 2015, real bank credit growth
-20
was -7.1 per cent, representing an increase of 0.2 p.p. when
-40
compared to the previous quarter.
per cent
80
1981 Q4
1983 Q2
1984 Q4
1986 Q2
1987 Q4
1989 Q2
1990 Q4
1992 Q2
1993 Q4
1995 Q2
1996 Q4
1998 Q2
1999 Q4
2001 Q2
2002 Q4
2004 Q2
2005 Q4
2007 Q2
2008 Q4
2010 Q2
2011 Q4
2013 Q2
2014 Q4
-60
Crisis periods
(1y diff bank credit/5y m.a. GDP)
(1y diff bank credit)/(5y m.a. GDP), 4 quarter m.a.
Sources: BdP, INE and BdP’s calculations. Last observation: 2015 Q3.
It is expected that bank credit continues to recover over the
upcoming quarters due to developments in both supply of
and demand for credit. On the one hand, more favourable
2
COUNTERCYCLICAL CAPITAL BUFFER
Chart 3 – Spreads on new loans granted to non-financial
a renewed pick-up in the credit market, especially if
corporations5
accompanied by a similar evolution in banks’ spreads applied
percentage points
in lending to households. However, the spread to non7
financial corporations for the third quarter of 2015 (3.7 p.p.)
6
still stands well above the historical and pre-crisis averages
5
and, in particular, the minimum value observed around 2007-
4
end. Moreover, the results of the January 2016 Bank Lending
3
Survey show that the largest banking groups are not lowering
2
spreads for high risk loans. In addition, banks have continued
to adjust their balance sheets as shown by the constant
1
improvements in the loan-to-deposit ratio, and the private
Crisis periods
2015 Q1
2014 Q2
2013 Q3
2012 Q4
2012 Q1
2011 Q2
2010 Q3
2009 Q4
2009 Q1
2008 Q2
2007 Q3
2006 Q4
2006 Q1
2005 Q2
2004 Q3
2003 Q4
2003 Q1
0
Spreads on new loans to non-financial corporations
Sources: BdP, Reuters and BdP’s calculations. Last observation: 2015 Q3.
non-financial sector continues to deleverage. Therefore, there
is no evidence pointing to excessively loose bank credit
conditions.
The current account was positive in the
third quarter of 2015
Chart 4 – Current account deficit as a percentage of
GDP6
In the third quarter of 2015, the current account as a
percentage of GDP registered a positive value in line with the
16
14
12
10
8
6
4
2
0
-2
-4
adjustment observed during the crisis, standing at 1.5 per
cent. This recent development is also aligned with the still
negative growth in total lending to households and non-
per cent
financial corporations. Against this background, current
account developments do not point to an acceleration in the
credit market in the near future.
1996 Q1
1997 Q1
1998 Q1
1999 Q1
2000 Q1
2001 Q1
2002 Q1
2003 Q1
2004 Q1
2005 Q1
2006 Q1
2007 Q1
2008 Q1
2009 Q1
2010 Q1
2011 Q1
2012 Q1
2013 Q1
2014 Q1
2015 Q1
General assessment
Current account deficit as a percentage of GDP
Current account deficit as a percentage of GDP, 4 quarter m.a.
Sources: BdP, INE and BdP’s calculations. Last observation: 2015 Q3.
The assessment regarding the need to implement the
countercyclical capital buffer in Portugal has not changed
significantly since December 2015. From a macroprudential
perspective, financial market conditions are still in a post crisis
phase and, accordingly, there is no reason for changing the
current countercyclical buffer rate.
prospects for the Portuguese economy - in particular, for the
housing market - and the improvement in bank’s financial
position should contribute to an increase in the supply of
credit.
On the other hand, credit demand may benefit from a
recovery in consumer confidence and investment, related to,
among other factors, a reduction in households’ debt service
and non-financial corporations’ financing costs as a result of
low interest rates.
Banks’ spreads are still above the historical
average
The narrowing of banks’ spreads on new loans granted to nonfinancial corporations since late 2012 entails the possibility of
COUNTERCYCLICAL CAPITAL BUFFER
3
Notes
1
2
3
4
5
6
The assessment is based on available data up to 18 January 2016. This set of indicators covers the six categories set out in
Recommendation ESRB/2014/1.
In case the gap exceeds 2 p.p., the benchmark buffer rate will increase linearly from 0 per cent to the upper threshold of 2.5 per cent of
the total risk exposure amount, which is associated with a gap of 10 p.p.. See Recommendation ESRB/2014/1 Annex Part II available at
http://www.esrb.europa.eu/pub/pdf/recommendations/2014/140630_ESRB_Recommendation.en.pdf?03a7c5c908620b34673b6f290b5
4c13d.
BCBS thresholds of 2 p.p. and 10 p.p. were determined using the Basel gap. Nevertheless, they are used as an approximation to map the
additional credit-to-GDP gap into a benchmark buffer rate.
Credit to the domestic private non-financial sector, comprising all lending (loans and debt securities) extended by domestic and foreign
banks, non-banks and debt markets. The credit-to-GDP ratio is computed using a four-quarter moving sum of nominal GDP. Credit is
obtained from National Financial Accounts Statistics published by BdP and nominal GDP from National Accounts (ESA2010, base 2011)
published by INE.
The credit-to-GDP gap is calculated as the percentage point difference between the observed credit-to-GDP ratio and its long-term trend,
where the trend is estimated employing a one-sided HP filter with a smoothing parameter set to 400,000.
The additional credit-to-GDP gap is computed as the percentage point difference between the observed credit-to-GDP ratio augmented
with ARIMA(p,1,0) forecasts, using a maximum forecast horizon of 28 quarters, and its long-term trend, where the trend is estimated
employing a one-sided HP filter with a smoothing parameter set to 400,000. Until the first quarter of 2015, the optimal lag order (p) of the
forecasting model is recursively determined. From the second quarter of 2015 onwards, p is set to three quarters, which is the optimal
lag length when data until the first quarter of 2015 is used.
Crisis periods as identified for the ESCB Heads of Research Group’s banking crises database.
Calculated as the ratio between the one year absolute difference of bank credit and the five year m.a. of GDP, as proposed in Kalatie et al.
(2015), “Indicators used in setting the countercyclical capital buffer”, Bank of Finland Research, Discussion Papers, No. 8/2015. Bank credit
extended by resident monetary financial institutions as available in Monetary and Financial Statistics published by BdP. Nominal GDP is
obtained from National Accounts, ESA2010, base 2011, published by INE.
Crisis periods as identified for the ESCB Heads of Research Group’s banking crises database.
Average of spreads weighted by the corresponding outstanding loan amounts at the end of the quarter. Spread is calculated against the
three month Euribor rate as available in Reuters. Only interest rates on new loans granted by other monetary financial institutions to
residents with initial rate fixation up to one year are considered. Interest rates on new loans as available in Monetary and Financial Statistics
published by BdP.
Current account deficit seasonally adjusted as available in the Balance of Payments Statistics published by BdP.
Abbreviations
ARIMA
BCBS
BdP
ESA
ESCB
ESRB
GDP
HP
INE
m.a.
p.p.
1y diff
Autoregressive Integrated Moving Average
Basel Committee on Banking Supervision
Banco de Portugal
European System of Accounts
European System of Central Banks
European Systemic Risk Board
Gross domestic product
Hodrick and Prescott
Instituto Nacional de Estatística (Statistics Portugal)
Moving average
Percentage points
1 year absolute difference