* Tests show banking sector can withstand shocks
* A few small banks facing recapitalisation need
* Worst-case scenario sees financial sector needing 0.6
pct/GDP
(Adds quotes, details)
PRAGUE, June 16 (Reuters) - Czech central bank stress tests
show the banking system would withstand shocks in all projected
scenarios, although some financial institutions may
suffer losses and require a capital hike, the bank said on
Tuesday.
The bank conducted stress tests using three scenarios with
the baseline test assuming the economy would perform in line
with its official forecast for a 2.4 percent contraction this
year.
The survey made any reference to any particular bank,
discussing the financial sector only in general terms.
Czech banks have been shielded from the global financial
crisis by the country's high levels of savings, high capital
adequacy, very small holdings of toxic assets and small
borrowing in foreign currencies.
But the country has suffered from a collapse in west
European demand which has hardly hit the manufacturing sector,
resulting in a threat to the financial sector from the real
economy.
"Despite the risks being significant, the Czech financial
sector belongs among the most resilient in the European
context," central bank board member Robert Holman told a press
conference.
Almost all Czech banks are foreign-owned, with the three
largest -- CSOB, Ceska Sporitelna and Komercni Banka <>
-- owned by Belgium's KBC <KBC.BR>, Austria's Erste Group
<ERST.VI> and Societe Generale <SOGN.PA>, respectively.
Under the bank's baseline scenario, four small banks with
8.2 percent of total banking sector assets would require a
capital hike equal to about 0.2 percent of gross domestic
product, or 8 billion crowns ($412.2 million).
The financial sector as a whole would require a 14 billion
recapitalisation.
"The total effects of the shocks in scenario A... would be
around 60 billion crowns -- roughly 25 percent of the bank's
capital, or 125 percent of the average annual profit in the last
five years," the bank said in its report.
It said the banking sector as a whole would end the year
with capital adequacy of 11.3 percent, down from 12.9 percent at
the end of March, and non-performing loans would rise to almost
8 percent from 3.5 percent at the end of 2008.
Under the worst case scenario from the view of capital
needs, eight banks with market share of 21.8 percent would see
recapitalisation need of 15 billion crowns, and the total
financial sector would need 23 billion, or about 0.6 percent of
GDP.
The worst case scenario, called "market nervousness",
assumes 3.9 percent economic decline combined with a currency
drop, which would result in a 100 billion crown shock to the
banking sector.
Total banking sector capital adequacy would drop to 10
percent under that scenario.
(Reporting by Jana Mlcochova, writing by Jan Lopatka; editing
by Patrick Graham)
