Czech banks and insurance companies will be able to withstand any possible deterioration in economic conditions, with the banking sector helped by strong capital levels, the central bank said on Tuesday the 5th of October after its latest round of stress testing.
The Czech National Bank conducts supervisory stress tests every two years to assess individual companies. These are in addition to annual macro-stress testing to assess the resilience of the overall banking sector.
Czech banks have long been supported by strong capital levels, weathering the crisis from the global coronavirus pandemic when the economy sank 5.8% in 2020.
The central bank said the results of testing 15 banks, accounting for around 90% of assets in the sector, showed they were resilient.
Their capital ratio under a strong economic decline scenario would fall to 18% - well above a regulatory minimum of 8% - from 22.6% at the end of 2020.
Similarly, the insurance sector had sufficient funds at the end of 2020 and could absorb significant risk changes, the bank said.
The central bank has forecast the economy will rebound by 3.5% in 2021 after last year's sharp contraction and accelerate further in 2022.
The central bank raised its key interest rate by 75 basis points last week as part a series of hikes to contain inflation expectations as prices spike during the post-pandemic recovery, also driven by domestic factors such as a tightening labour market.
The tighted policy is also aimed at cooling the real estate market, especially in Prague, where house prices have soared.
Source: Thomson Reuters
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