Stress tests show Czech banking system will withstand deep recession in Europe.

By bne IntelliNews June 20, 2012
The Czech banking sector is well capitalised and it would remain stable even if the euro areas debt crisis deepens further and causes a prolonged decline in the economic activity, the central banks stress tests showed. The banking sectors stability is based on its high capital adequacy ratio, which stood at 15.22% as of end-March 2012 and is seen staying well above the regulatory minimum of 8% in the next three years. The central bank tested local lenders under two scenarios a baseline scenario and a stress scenario. The stress scenario assumes a prolonged contraction in economic activity, a sharp fall in property prices, a rise in non-performing credits and lower operating profits of lenders. Under this scenario, 12 banks would get into a situation of insufficient capital adequacy and will need a capital injection totalling CZK 15bn (EUR 764mn), or 0.4% of the GDP, the bank said. The baseline scenario envisages economic developments according to the banks own forecast and the bank considers it as the most probable. The bank expects the economy to contract this year and return to growth in 2013. Under this scenario, the banking sector would require no additional injections.

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