The Czech National Bank unveiled details of the stress tests, which had been exercised some weeks ago. It is worth to note that CNB’s stress test were based on much tougher assumptions than recently released stress tests in the Euro-zone. For instance, the so-called ‘Recession scenario’ assumed that there would be 100% impairment of exposures vis-a-vis euro-zone indebted countries (PIIGS) and there would be 30% decline in domestic housing prices.
The central bank found out that even in such an adverse scenario only few banks would get into a situation of insufficient capital adequacy. To make up their capital adequacy back to the regulatory minimum of 8%, they would have to increase their regulatory capital by CZK 13.4bn (0.4% of GDP). This outcome clearly shows the whole banking sector is well capitalized (capital adequacy ratio stands at 15.9%) and is resilient to a severe adverse shock. Anyway, CNB’s conclusion looks quite similar to the recent positive rating assessment of the S&P agency.