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Slovak stress tests show banks' strength sound - cbank
by Martin Santa

Reuters    Translate This Article
12 April 2010

BRATISLAVA (Reuters) - Stress tests showed the Slovak banking system's strength was sound and majority of banks would weather even a worsening of economic recovery or rising stress on financial markets, the central bank said on Monday.

The euro zone newest member's banks have been shielded from the direct impacts of the global financial crisis, mainly thanks to the adoption of the euro in January 2009, very small holdings of toxic assets and small borrowing in foreign currencies.

'A majority of banks would, even in a case of significantly negative developments in the domestic economy and an increasing number of outstanding loans, meet requested capital levels,' the bank wrote in its analysis on country's financial sector in 2009.

The National Bank of Slovakia (NBS) conducted its tests using four scenarios, with the mid-scenario assuming the economy would fall by 1.1 percent this year, while the worst-case scenario implies a 3.1 percent drop.

One scenario presumed an uncertainty on financial markets solely.

In reality, the bank forecasts the economy will expand by 3.2 percent this year, while the government expects 2.8 percent growth. The bank's tests are based on its forecasts from last November.

Under the mid-scenario two banks would fall below the minimum capital level, same number as in tests published in September last year. In 2008, this scenario showed six banks were at risk.

The worst case scenario saw two banks at risk, down from seven in September 2009 and eight presumed by the end of 2008.

The leftist government of Prime Minister Robert Fico, seen a front-runner in a June general election, has not had to bail out any of country's banks, run by Italian, Austrian, Dutch, Belgian or Hungarian parent banks.

CREDIT RISKS REMAINS KEY THREAT

Credit risk remains the banks' biggest threat, the NBS wrote, adding weaker financial health of non-financial institutions and households, as seen by the end of 2009, would react quite sensible to negative trends in the economy.

'An important factor of the banking sector's stability in the nearest period (coming two years) will remain a good starting-point of banks when entering the crisis,' the analysis said.

The crisis unveiled structural problems which export-reliant economies, such as Slovakia, will face in the coming years and put production capacities under pressure, the bank wrote.

The 63-billion euro economy is largely driven by car and electronics industries which ship more than 95 percent of its production abroad. Weak foreign demand hurts local producers, cuts jobs and worsens ability to repay bank loans.

The study showed global downturn and the euro adoption stood behind banks' losses, with the entire banking sector showing an almost 50 percent drop on the year in the overall profit in 2009, falling to 278 million euros.

(Editing by Toby Chopra)

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