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UPDATE 1-Czechs double "bad times" set-aside for domestic banks

(Adds further comments, bank shares)

PRAGUE, June 13 (Reuters) - The Czech central bank on Tuesday said it was doubling the amount domestic banks must put aside as a precaution for hard times as of July next year because of rapid credit growth.

It raised the countercyclical buffer rate, what must be set aside, to 1.0 percent of capital from 0.5 percent.

The bank said it stood ready to either increase the rate or to cut it, depending on developments in the market.

Czech banks, mostly western-owned and which made it through the global financial crisis almost a decade ago relatively unscathed, remain highly capitalized and have had to meet the 0.5 percent countercyclical buffer rate since the start of this year, causing some to cut back on dividends.

With interest rates at record lows in recent years, however, banks have compensated with strong lending growth to keep profits up. The central bank said on Tuesday the absolute growth of bank loans was the fastest since the second quarter of 2009.

"The domestic economy has shifted further into a growth phase of the financial cycle, characterized by rapid growth in loans. It is necessary to use good times for provisioning, as provisions enable the banking sector to operate smoothly in worse times," Central Bank Governor Jiri Rusnok said.

Policymakers has paid particular attention to the housing market as low rates have driven mortgage lending sharply higher and apartment prices in Prague soar.

The bank put recommendations in place for banks last year - and tightened them in April - to set limits on the size of mortgages provided. It is also hoping to get legal powers from new legislation going through parliament, although the bill is at risk of being watered down or failing.

The change in the countercyclical buffer comes as the bank presented its annual financial stability report on Tuesday. In it, the bank said the banking sector remained stable and is still highly resilient to potential adverse shocks.

It added that the sector would maintain overall capital adequacy above the 8 percent threshold even in a "very unlikely" adverse scenario projected by the central bank's stress tests. (Reporting by Robert Muller and Petra Vodstrcilova; Editing by Jason Hovet/Jeremy Gaunt)