Capital buffers

One of the most important innovations introduced by Basel III standards are capital buffers. Capital buffers are additional Common Equity Tier 1 capital that banks are obliged to maintain above the prescribed regulatory minimum. Their introduction has several advantages: the buffers increase the resilience of banks to losses, reduce excessive or underestimated exposures and restrict the distribution of capital. These macroprudential instruments should limit systemic risks in the financial system, which can be cyclical (capital conservation buffer and countercyclical capital buffer) or structural (capital buffer for a systemically important bank and systemic risk buffer).

Capital buffers in Serbia Current rate  Notes
Capital conservation buffer 
(Section 434 of the Decision on Capital Adequacy)		 2.5% The Decision on Capital Adequacy of 15 December 2016 sets out that a bank is obliged to maintain a capital conservation buffer on an individual and consolidated basis equal to 2.5% of its risk-weighted assets. The capital conservation buffer may consist only of Common Equity Tier 1 capital and applies as of 30 June 2017.
Countercyclical capital buffer 
(Section 435 of the Decision on Capital Adequacy)		 0%

The Decision on the Countercyclical Buffer Rate for the Republic of Serbia of 8 June 2017 sets the rate equal to 0%, in effect as of 30 June 2017.

At its meeting of 10 September 2020, the NBS Executive Board decided to keep the CCyB rate at 0%, in order to mitigate potential negative effects of the pandemic on the conditions of financing of corporates and households, keeping in mind the following:

  • Guide for setting the CCyB rate: 0%.
  • Credit-to-GDP ratio: 82.8% 
  • Deviation of credit-to-GDP ratio from its long-term trend (credit-to-GDP gap): -0.7 pp
Explanation: Though rising, the estimated credit-to-GDP gap remains below its long-term trend. Having in mind that the estimated share of real credit in real GDP is below its long-term trend, i.e. that the credit-to-GDP gap is below the 2 pp benchmark , as well as heightened global uncertainty caused by the coronavirus, setting a CCyB rate at a level higher than 0% could have a negative impact on credit activity.
Capital buffer for a systemically important bank 
(Section 452 of the Decision on Capital Adequacy)		 1–2% The Decision on Establishing a List of Systemically Important Banks in the Republic of Serbia and Capital Buffer Rates for Those Banks of 7 May 2020 establishes systemically important banks and the capital buffer rates that those banks are obligated to maintain as of 30 June 2020.
Systemic risk buffer 
(Section 446 of the Decision on Capital Adequacy)		 3% The Decision on the Rate and Manner of Maintaining the Systemic Risk Buffer of 8 June 2017, with changes from 11 January 2018, sets the systemic risk buffer, applied as of 30 June 2017. 
  • The systemic risk buffer rate is equal to 3% of total foreign currency and foreign currency-indexed placements of a bank approved to corporates and households in the Republic of Serbia. 
  • All banks whose share of foreign currency and foreign currency-indexed placements approved to corporates and households in the Republic of Serbia in total placements of that bank approved to corporates and households in the Republic of Serbia exceeds 10% are obliged to maintain the systemic risk buffer. 
  • Explanation: The systemic risk buffer is introduced to limit the risk of euroisation, one of the key structural non-cyclical systemic risks to the stability of the financial system of the Republic of Serbia. 
  • Exposures: The systemic risk buffer recognises exposures in the Republic of Serbia.