Decision on the Methodology for Determining the Rate of the Countercyclical Capital Buffer for Exposures in the Republic of North Macedonia

NATIONAL BANK OF THE REPUBLIC OF NORTH MACEDONIA Pursuant to Article 47 paragraph 1 item 6 of the Law on the National Bank of the Republic of Macedonia (Official Gazette of the Republic of Macedonia No. 158/10, 123/12, 43/14, 153/15 and 6/16) and Article 65-d paragraph 1 of the Banking Law (Official Gazette of the Republic of Macedonia No. 67/07, 90/09, 67/10, 26/13, 15/15, 153/15 and 190/16), the National Bank of the Republic of North Macedonia Council adopted the following DECISION on the Methodology for Determining the Rate of the Countercyclical Capital Buffer for Exposures in the Republic of North Macedonia (Unofficial revised text) 1
I. GENERAL PROVISIONS

1. This Decision lays down the methodology on the basis of which the National
   Bank of the Republic of North Macedonia (hereinafter: the National Bank) determines the rate of the countercyclical capital buffer for exposures to residents in the Republic of North Macedonia (hereinafter: exposures in the Republic of North Macedonia), which includes:

• determination of the rate of the countercyclical capital buffer for exposures
  in the Republic of North Macedonia;
• manner of introducing and changes in the rate of the countercyclical capital
  buffer for exposures in the Republic of North Macedonia.
  Besides the methodology referred to in paragraph 1 of this item, this Decision also lays down the manner of calculation of the specific rate of the countercyclical capital buffer and the manner of submitting data to the National Bank on its amount and structure.

2. Terms not defined in this Decision shall have the meaning defined in the
   Banking Law and the National Bank regulation, which regulates the methodology for determining capital adequacy.
   II. DETERMINATION OF THE RATE OF THE COUNTERCYCLICAL CAPITAL
   BUFFER FOR EXPOSURES IN THE REPUBLIC OF NORTH MACEDONIA

1 This is a revised text of the Decision on the Methodology for Determing the Rate of the Countercyclical Capital Buffer for Exposures in the Republic of North Macedonia. The revised text consist of the Decision on the Methodology for Determining the Rate of the Countercyclical Capital Buffer for Exposures in the Republic of Macedonia (Official Gazette of the Republic of Macedonia No.26/17), Decision on amending the Decision on the Methodology for Determining the Rate of the Countercyclical Capital Buffer for Exposures in the Republic of Macedonia (Official Gazette of the Republic of North Macedonia No.98/21) and Decision on amending the Decision on the Methodology for Determining the Rate of the Countercyclical Capital Buffer for Exposures in the Republic of North Macedonia (Official Gazette of the Republic of North Macedonia No.149/21).

3. The rate of the countercyclical capital buffer for exposures in the Republic
   of North Macedonia shall be determined through the following steps:

• determination of the ratio between the loans to the non-financial sector
  and the gross domestic product (hereinafter: rate of loans), in accordance with item 4 of this Decision;
• determination of the deviation of the rate of loans from its long-term trend
  (hereinafter: deviation of the rate of loans), in accordance with item 5 of this Decision;
• determination of the reference rate of the countercyclical capital buffer, in
  accordance with item 6 of this Decision;
• determination of the level of the rate of the countercyclical capital buffer
  for exposures in the Republic of North Macedonia, in accordance with item 8 of this Decision.

4. The rate of loans for each quarter (t) shall be calculated as the ratio of the
   loans to the non-financial sector and the nominal gross domestic product, using the following formula:
   Rate of loans (t) = (
   Loans to the non −financial sector (t)
   (GDP(t − 1)+ GDP(t −2) +GDP(t − 3)+ GDP(t − 4)) ) × 100

5. The deviation of the rate of loans for each quarter(t) shall be calculated as
   the difference between the rate of loans referred to in item 4 of this Decision and the trend(t), using the following formula:
   Deviation of the rate of loans (t) = Rate of loans(t) − Trend(t) Trend(t) in the formula referred to in paragraph 2 of this item shall represent average value of the rate of loans, calculated by using the one-sided Hodrick Prescott filter with a lambda parameter equal to 400,000 for the quarter(t). The deviation of the rate of loans referred to in paragraph 1 of this item shall be presented in percentage points.

6. If the deviation of the rate of loans referred to in item 5 of this Decision is
   equal to or less than 2 percentage points (lower limit), the reference rate of the countercyclical capital buffer for exposures in the Republic of North Macedonia equals 0%. If the deviation of the rate of loans referred to in item 5 of this Decision is equal to or higher than 10 percentage points (upper limit), the reference rate of the countercyclical capital buffer for exposures in the Republic of North Macedonia equals 2.5%. If the deviation of the rate of loans referred to in item 5 of this Decision is between the lower and upper limit referred to in paragraphs 1 and 2 of this item, the reference rate of the countercyclical capital buffer for exposures in the Republic of North Macedonia shall be determined by using the following formula:
   Reference rate of the countercyclical capital buffer = Deviation(t) × 0,3125 − 0,625

7. The National Bank shall determine the reference rate of the countercyclical
   capital buffer for exposures in the Republic of North Macedonia referred to in item 6 of this Decision on a quarterly basis.

8. Depending on the amount of the reference rate of the countercyclical capital
   buffer, determined according to item 6 of this Decision, the National Bank shall determine the required rate of the countercyclical capital buffer for exposures in the Republic of North Macedonia. The rate of the countercyclical capital buffer referred to in paragraph 1 of this item shall range from 0% to 2.5% and shall be presented in intervals of 0.25 percentage points. As an exception, if it is established that this is necessary in determining the amount of the rate of the countercyclical capital buffer referred to in paragraph 1 of this item, the National Bank may take into account other indicators of the level of systemic risks, as indicators of the financial markets, the real estate market, the resilience of the banking system, the domestic economy and the like. The National Bank may determine rate of countercyclical capital buffer for exposures in the Republic of North Macedonia higher than 2.5% on the basis of the indicators referred to in paragraph 3 of this item.
   III. MANNER OF INTRODUCING AND CHANGE IN THE RATE OF THE
   COUNTERCYCLICAL CAPITAL BUFFER FOR EXPOSURES IN THE REPUBLIC OF NORTH MACEDONIA

9. Considering the rate of the countercyclical capital buffer determined
   according to item 8 of this Decision, the National Bank shall determine on a quarterly basis whether there is a need not to introduce, to introduce, to increase, to reduce or to release the countercyclical capital buffer for exposures in the Republic of North Macedonia.

10. In determining whether there is a need not to introduce, to introduce, to
    increase, to reduce or to release the countercyclical capital buffer referred to in item 9 of this Decision, the National Bank may take into account other indicators of the level of systemic risks, such as indicators of the financial markets, the real estate market, the resilience of the banking system, the domestic economy and the like.

11. On the basis of the determined need referred to in item 9 of this Decision,
    the National Bank Council shall adopt a Decision on the rate of the countercyclical capital buffer, which shall state at least the following:

• the date from which the banks are required to apply the rate of the countercyclical
  buffer, in case of its introduction or increase;
• the date from when the rate of the countercyclical capital buffer is reduced or
  from when the requirement for countercyclical capital buffer is released, taking into consideration the provisions referred to in item 12 paragraph 1 of this Decision;
• the reasons for the setting of a shorter application date, in cases when the
  introduction or the increase of the rate of the countercyclical capital buffer set an application date that is shorter than 12 months.

12. In case of reduction of the rate of the countercyclical capital buffer for
    exposures in the Republic of North Macedonia, or in case of release of the requirement for countercyclical capital buffer for exposures in the Republic of North Macedonia, the reduction, i.e. the release shall come into effect on the eight day from the day of the publication of the Decision on reduction, i.e. on release of the countercyclical capital buffer in the Official Gazette of the Republic of North Macedonia. The National Bank shall publish the rate of the countercyclical capital buffer on its website pursuant to the law.
    IV. MANNER OF CALCULATION OF THE SPECIFIC RATE OF THE
    COUNTERCYCLICAL CAPITAL BUFFER FOR EACH BANK
13. The bank shall determine specific rate of the countercyclical capital
    buffer.
14. The specific rate of the countercyclical capital buffer shall represent
    weighted average of the rates of the countercyclical capital buffer for the bank's exposures to private sector customers from all countries to which the bank has an exposure, including the Republic of North Macedonia. Determination of the specific rate of the countercyclical capital buffer shall include the exposures to private sector customers from all countries, regardless of the rate of the countercyclical capital buffer for the exposures to that country. The specific rate of the countercyclical capital buffer shall be determined by using the following formula:
    ∑n (𝑆𝑍 × KPKR𝑍)
    Specific rate of the countercyclical capital buffer = =1 × 100 KPKR The terms of the formula referred to in paragraph 2 of this item shall have the following meaning:

• Sz shall be rate of the countercyclical buffer for exposures to the Z country,
  published by a Decision of the National Bank Council;
• KPKRZ shall be the capital requirement for credit risk for exposures to private
  sector customers from the Z country, determined according to the National Bank regulation on the methodology for determining capital adequacy;
• KPKR shall be the total amount of the capital requirement for credit risk for
  all bank's exposures to private sector customers, determined according to the National Bank regulation on the methodology for determining capital adequacy. For the purposes of this item, exposures to private sector customers shall include exposures to non-bank financial institutions, households and non-financial legal entities, with the exception of public sector entities.
  V. MANNER AND CONTENTS OF REPORTING TO THE NATIONAL BANK

15. The bank shall submit a report to the National Bank on the amount and
    structure of the specific rate of the countercyclical capital buffer referred to in item 14 of this Decision (SSPZSK Form), at least on a quarterly basis, as of 31 March, 30 June, 30 September and 31 December.

16. The submission date of the reports referred to in item 15 of this Decision
    shall be fifteen working days after the date for which the report is submitted. By way of derogation from paragraph 1 of this item, the submission date of the report referred to in item 15 of this Decision as of 31 December shall be five working days after the expiration of the submission date of the non-audited annual financial statement. The report referred to in item 15 of this Decision is an integral part of this Decision.
    VI. CLOSING PROVISIONS

17. This Decision shall enter into force on the eighth day from the date of its
    publication in the Official Gazette of the Republic of Macedonia, and shall apply from 1 July 2017. Dimitar Bogov Governor and Chairman of the Council of the National Bank of the Republic of Macedonia

Report on determining the specific rate of the countercyclical capital buffer as of ______________________ Ref. No. Country Capital requirement for credit risk Rate of the countercyclical capital buffer (in %) Countercyclical capital buffer 1 2 3 4 5=3*4 ...
I. Total (1+2+3+...) 0 0
II. Specific rate of the countercyclical capital buffer 0
The gray field shall not be filled in

1. Individual rows referred to in column 2 shall state all countries (separately) to which the bank has an exposure.
2. Column 3 shall state the capital requirement for credit risk for exposures to each country referred to in column 2.
3. Column 4 shall state the rate of the countercyclical capital buffer for exposures to individual country, published by the National Bank. If the
   National Bank has not published rate of countercyclical capital buffer for exposures to a particular country, 0% shall be stated.
4. Column 5 shall state the product of the amounts of the individual rows referred to in columns 3 and 4.
5. Row I "total" shall be filled in for columns 3 and 5, as a sum of all amounts of the previous rows of those columns.
6. Row II "specific rate of the countercyclical capital buffer" shall state the quotient of the amounts referred to in columns 5 and 3, of the total row,
   multiplied by 100 (it shall be presented in %).