Stress tests show Czech banks resilient to shocks.

By bne IntelliNews November 30, 2011
Czech banking sector is sufficiently resilient to adverse developments as the banks capital adequacy would stay above the regulatory minimum of 8% even under a stress scenario, the central banks November 2011 stress tests showed. In the worst projected scenario, called Double Dip, several banks would need to raise capital by a total of CZK 13.6bn. This scenario assumes a marked decrease in economic activity and growing unemployment in the Czech Republic as a result of a sharp decline in the economic activity in the countrys main trading partners and tougher fiscal consolidation measures. The banking sectors stability continues to be based on its high capital adequacy ratio, which stood at 15.7% at the end of September 2011. Under the baseline scenario, the share of non-performing loans to total loans extended to non-financial corporations is expected to rise to 8.9% at the end of the two-year projected period, while in the household sector the share is to be lower at 5.9%. Under the Double Dip scenario, loan impairment losses would reach almost 2.75% of the total loan portfolio in 2012. Regarding banks operating profit, the baseline scenario envisages an annual decline of 5% in 2012 due to higher competition on the deposit market. The stress scenario assumes a 20% to 25% decrease in operating profit.

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