zdenek tuma : present and future challenges for the czech national bank introductory remarks by mr zdenek tuma, governor of the czech national bank, at the cnb conference : ” challenges of eu accession ”, prague, 1 april 2003. * * * ladies and gentlemen, dear colleagues, it is my pleasure and honour to welcome you here to the czech national bank for what i believe will be a very interesting policy - oriented conference. the czech national bank is this year celebrating a decade of its existence as the central bank of the czech republic. when we look back at that period, we can see many difficult challenges that we had to face in order to facilitate the economic transition and later on to bring our operations into line with best international practices. this experience is similar for all other central banks in the post - communist eu - accession countries. but i do not want to speak about those past challenges today. they are mostly behind us, and our situation is now very different. therefore, i would like to be forward - looking as any modern central banker should - and to speak about the challenges that we all share at present and, most importantly, about those that lie ahead. as you all know, the accession treaties will be signed in two weeks. this will be a symbolic milestone in the eu integration process, which has been going on in the economic and political sphere for many years. the implications of this process for monetary policy - and economic policies in general - have been debated extensively on many occasions. these academic discussions have covered the pros and cons of eu and emu accession, its optimal timing, the associated risks and so on. not surprisingly, they have often been inconclusive and could continue for many years to come. however, time presses us, as monetary policy - makers, to cope with these fundamental uncertainties and to make decisions, designing clear steps to be taken to meet the eu accession challenges. therefore, i am glad that we have gathered here to discuss our future policies. the topics are the same for all of us, and we thus have many ideas to share. but even before we get to the discussion, i would like to stress that in many areas we are unlikely to find universal solutions for all countries. policies need to take into account the particular circumstances of each accession country, such as its current economic situation, monetary policy regime and fiscal stance. for example, the way towards the eurozone in an accession country with a currency board will be completely

which would lead to a further deterioration in credit quality. flexibility is nonetheless limited by the need not to delay the emergence of highly probable losses, bringing forward a part of the loan loss provisions before insolvencies become evident. efforts should be made to counter the risk that banks could accumulate an excess of npls on their balance sheets that have not been adequately written down. being proactive in recognizing losses may enable banks to avoid finding themselves in situations similar to those they experienced immediately after the sovereign debt crisis, when it was only after decisive action from the bank of italy ’ s supervisory function – and considerable resistance from banks – that significant increases in loan loss provisions were actually effected. i recall that in 2012, in this very venue, i highlighted the need to raise the coverage ratio for nonperforming loans, which had fallen to worrying levels ( below 40 per cent ). shortly before that, we had launched a series of targeted inspections intended, among other things, to assess the adequacy of the provisioning policies. in part owing to this supervisory action, the downward trend in the coverage was reversed, though with markedly varied results. the average increase exceeded 5 percentage points over the following two years. despite the overall stability in the flow of non - performing loans, in the first half of this year, italian banks increased their loan loss provisions by 53 per cent on average compared with the same period of 2019. the write - downs were mostly used to raise the coverage ratio for performing loans, whose riskiness increased owing to the deteriorating economic outlook. the ratio between the write - downs recorded up to last june relating to loans to households and firms benefiting from the debt moratoria, which are facing greater uncertainty as to how their riskiness will evolve, and the gross exposures to these counterparties combined, is equal to 1. 2 per cent, one third higher than the average for all loans to households and firms. the growth in loan loss provisions, however, was highly uneven and largely driven by the actions of some large credit institutions. several banks, both significant and non - significant, show coverage ratios for performing loans that are well below the banking system average. these gaps must be closed. special attention will have to be devoted to the banks that are, on average, more exposed to the firms that have benefited from the moratoria and to the sectors that have been hit hardest by the effects of the pandemic. obviously, this must not be done indiscr