* NPL to rise even under baseline scenario
* But banking sector remains resilient overall
* Aggregate capital adequacy constantly above 8 pct
* Some banks would need to add capital in adverse scenario
(Adds background)
PRAGUE, Aug 30 (Reuters) - Czech banks' non-performing loans
will rise in the next year but the sector should remain
resilient to potential shocks and be well-capitalised even if an
extremely negative scenario were to develop, central bank stress
tests showed on Monday.
Some banks, however, in the adverse scenario would have to
increase their regulatory capital by just under 3.5 billion
crowns ($179.9 million), or around 0.1 percent of GDP.
Non-performing corporate loans will rise to nearly 10
percent by the middle of 2011 from around 8.5 percent in June of
this year under the stress tests' baseline scenario, which
assumes the central bank's official forecast for 1.6 percent
economic growth this year.
Non-performing household loans should rise to around 5.5
percent by the end of 2010, from 4.5 percent in June, the
central bank said.
Czech banks have come through the global financial crisis
without requiring any state aid thanks to a strong deposit base
relative to their loan exposure and little dependency on
external financing.
The other, adverse scenario called "debt crisis", supposed a
combination of weak economic activity in the Czech Republic and
abroad, a W-shaped recession, and adverse financial market
developments.
"Despite the relatively high credit and market losses in
both macroeconomic scenarios, however, the banking sector as a
whole remains stable and its aggregate capital adequacy stays
constantly above the regulatory minimum of 8 percent," the
central bank said.
"This is achieved despite the conservative settings of many
of the assumptions of the individual scenarios," the bank added.
Under the adverse scenario, the corporate non-performing
loans ratio would rise to more than 14 percent at its peak at
the end of 2011. The household non-performing loan ratio would
rise to nearly 8 percent, the central bank said.
The increase in the bad loan ratio under the adverse
scenario would be reflected in relatively high loan impairment
losses, exacerbated by losses caused by a decline in the prices
of Czech government bond holdings and losses on exposures to
indebted southern euro zone states, the central bank said.
Low domestic interest rates in the past years have
discouraged foreign currency borrowing by Czech households, a
factor that hurt some central European countries when their
currencies depreciated in the global financial crisis.
The sector is dominated by traditional Czech banks with
strong savings balances that have been acquired by west European
lenders in the past decade.
The biggest players are the local units of Erste Bank
<ERST.VI>, KBC <KBC.BR> and Societe Generale <SOGN.PA>. Other
big lenders are UniCredit <CRDI.MI>, GE Money Bank, Raiffeisen
and ING.
(Reporting by Jason Hovet; writing by Jana Mlcochova; editing
by Michael Winfrey and Susan Fenton)
