The macro-prudential policy tools applied in the Armenia
During the last few years the CBA has worked continuously on the operationalization of Macroprudential policy instruments. Some of the instruments included in Macroprudential policy toolkit have been used for a long time, such as maximum caps on single borrower lending or differentiated requirements for FX exposures, others have been introduced recently.
The countercyclical capital buffer
In 2019 the CBA adopted a specific regulation, which defined the rules and timing of use of capital-based instruments of macroprudential policy. In the same year the first decision on Countercyclical capital buffer was made. In 2023 the CBA introduced a specific case of the CCyB, the so called “neutral level of CCyB”, which was meant to equip the financial system with minimum required size of CCyB in a forward-looking manner, long before the systemic risks start to accumulate. Put another way, it is the CCyB that is applied in the “normal” phase of financial cycle, when systemic risks are neither elevated, or subdued. The specific details on the CCyB implementation can be found in the document, called “The CBA’s approach to the application of Countercyclical capital buffer”.
The decisions on Caountercyclical capital buffers are made by the CBA on a quarterly basis. Each quarter the decision on the CCyB size and rationale behind it are published in the CBA website. The CBA also publishes a presentation, which contains relevant data on systemic risk indicators, as well as general information important from financial stability perspective.
Current rate of the CCyB is 1.75%.
Next decision is expected in July 2025.
CBA Board decisions on financial stability
Other capital-based instruments
On top of the CCyB, the CBA currently uses two other types of capital-based macroprudential instruments, namely the capital conservation buffer and a specific capital requirement for systemic institutions. The former is used to keep the banks from maintaining their capital adequacy level just on the required level, and the latter is meant to address the risks stemming from misaligned incentives and moral hazard by posing additional capital requirement on systemic banks.
Current rate of Capital conservation buffer is 2.5%.
Current rate of SIFI buffer is 1.5%.
Borrower-based instruments
The only borrower-based instrument used currently by the CBA is the maximum caps on LTV (loan-to-value) ratios of mortgage loans. It is designed as a norm for banks, and the rules and setting procedure is given by the following regulation “Regulation of Banking, prudential standards of banking”. It has differentiated rates for AMD and FX denominated loans (90% and 70% respectively), with some allowed level of deviation from this rule (no more than 5-10% of the average flow of previous two quarters). During 2023 however FX mortgages were banned for Armenian residents. The LTV ratio puts a cap on the volume of the mortgage loan relative to the collateral and is aimed to address the risks stemming from housing price fall.