By Christian Kraemer and Hans Seidenstuecker
BERLIN, May 27 (Reuters) - German banking authorities will require the country's banks to set aside more provisions from July to cover risks stemming from a pumped up domestic property market and slowing economy, the country's financial authorities said on Monday.
The Financial Stability Board - compromised of officials from the BaFin supervisor, the Finance Ministry, and the Bundesbank national central bank - said German banks combined need to set aside 5.3 billion euros ($5.9 billion) more in core capital.
Felix Hufeld, president of Germany's BaFin banking watchdog, said banks will have a 12-month timeframe to implement the countercyclical capital buffer, starting from July 1.
The step is meant as a precaution as regulators see "no concrete signs of acute risks for financial stability" in Germany, Deputy Finance Minister Joerg Kukies told a news conference in Berlin.
The financial authorities are responding to recent growth in lending in Germany that has outstripped the pace of expansion in the economy as a whole.
The provisions are aimed at preventing banks from sharply reining in their lending during a downturn, and thereby aggravating it. The Finance Ministry said Germany's banks should be able to meet the requirements "predominantly from existing surplus capital".
Critics see the move as Germany responding too late as the economy narrowly escaped recession last year and is growing only slowly this year - its 10th consecutive year of expansion.
Banks, facing a low interest rate environment that makes it harder for them to make a profit, nonetheless criticised the initiative.
"Today's decision by the Financial Stability Board to activate the countercyclical capital buffer within one year comes at an inopportune time and is met with incomprehension in the German banking industry," the Deutsche Kreditwirtschaft (DK) industry group said in a statement.
Bundesbank Vice President Claudia Buch, however, pointed to several potential risks, including a hard 'no deal' Brexit, overheating of the real estate market and overvalued collateral.
The DK industry group noted that German banks had passed stress tests that simulated an unexpected economic slump together with rising loan defaults.
"Serious risks to financial stability are currently not to be found," said the DK, which groups Germany's banking associations.
"In addition, German banks have increased their capital resources following the financial crisis as a result of the stricter regulations and are significantly more stable than before," the DK added.
($1 = 0.8934 euros)
(Additional reporting by Michael Nienaber Writing by Paul Carrel; Editing by Susan Fenton)
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