* Tests show banking sector can withstand shocks
* A few small banks facing recapitalisation need
* Worst-case scenario sees sector needing 0.6 pct of GDP
(Adds detail, analyst)
By Jana Mlcochova
PRAGUE, June 16 (Reuters) - Stress tests found the Czech
banking system would withstand shocks in all projected
scenarios, although some institutions may suffer losses and
require a capital hike, the central bank said on Tuesday.
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.
No Czech bank has collapsed nor needed a bailout. But the
country has suffered from a collapse in west European demand
which has severely hit the manufacturing sector, resulting in a
threat of higher defaults.
"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
reporters.
U.S. banks were forced to raise tens of billions of dollars
after the government announced the results of a test of their
capital in May. [] [] Other G8
countries have been less transparent. []
The Czech central bank conducted its tests using three
scenarios with the baseline test, scenario A, assuming the
economy performs in line with its official forecast for a 2.4
percent contraction this year.
Under that 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 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 banks'
capital, or 125 percent of the average annual profit in the last
five years," the bank said in its report.
The survey made no reference to any particular bank.
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.
The bank said the predicted losses could be interpreted as
the upper estimate of the 2009 losses, because stress tests
usually overestimate risks.
The central bank 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.
The bank however noted that due to a lag in growth of
non-performing credit behind the business cycle, its share on
total assets may keep growing next year.
Raiffeisenbank analyst Ales Michl agreed that the main hit
would come next year.
"There will be a delay between the low of the economic cycle
and the peak in the rate of unemployment and the peak in the
rate of insolvencies," he said. "That is why 2010 will be a
bigger challenge for the banking sector."
WORST-CASE SCENARIO
Under the worst-case scenario from the view of capital
needs, eight banks with share of 21.8 percent would see need 15
billion crowns, and the whole financial sector would need 23
billion, or about 0.6 percent of GDP.
That scenario, called "market nervousness", assumed a 3.9
percent economic decline combined with a currency drop, which
would result in a 100 billion crown shock to the banking sector.
Another scenario predicting a deeper, 6.2 percent economic
decline this year would also require 15 billion in new bank
capital, and 22 billion for the financial sector a whole. Bad
loans would reach 11.2 percent.
(Writing by Jan Lopatka; editing by Patrick Graham and Dan
Lalor)
($1 = 19.41 Czech crowns)
