* Sector capital adequacy reached 15.5 pct at end-September
* Adverse scenario shows need for CZK10.5 bln capital hike
* Sees corporate bad loans at 11.4 pct by end-2011
(Adds quote, background)
PRAGUE, Nov 29 (Reuters) - Czech banks remain stable enough
to withstand potential adverse shocks, though it would cost the
sector three times as much to recapitalise than previously
thought in a worst-case scenario, the central bank said on
Monday,
In a regular financial health update, the central bank said
the capital base of the whole sector would remain above the
regulatory minimum of 8 percent of assets even in the event of
adverse developments in the domestic and external economies plus
renewed uncertainty on financial markets.
"Despite the relatively high credit and market losses and
weakened operating profit in both macroeconomic scenarios, the
banking sector as a whole remains stable and its aggregate
capital adequacy stays constantly above the regulatory minimum
of 8 percent," the bank said.
"This is achieved despite the conservative settings of many
of the assumptions of the individual scenarios which suggest
rather a more pessimistic development."
The sector capital adequacy rate, the key reason for its
stability, reached 15.5 percent at the end of September from
above 14 percent in March, the bank said.
Under the pessimistic scenario, which the central bank said
was based on highly implausible developments in domestic
economic activity, some banks would have to increase their
regulatory capital by nearly 10.5 billion crowns ($562 million)
or 0.3 percent of GDP.
That figure was above an estimate made by the bank in August
when it saw the need for a capital hike in the worst-case
scenario at 3.5 billion crowns.
But the amount represents only a fragment of the banking
sector's profitability and would pose no systemic threat.
The adverse scenario assumes a decline in external demand
due to renewed uncertainty about financing euro zone countries'
debt.
Non-performing corporate loans will rise to close 11.4
percent at the end of 2011 from around 9 percent in September
this year under the baseline scenario, which assumes the bank's
official forecast for 2.3 percent economic growth this year, the
bank said.
Non-performing household loans should rise marginally next
year and then gradually decline to about 5.5 percent at the end
of 2012.
The debt crisis in the euro zone was ratcheted up another
notch at the weekend with an 85 million euro bailout deal for
Ireland. Analysts said the agreement has cast doubts on the
relevance of the stress tests carried last summer on lenders in
the single currency area, which no Irish banks failed.
However, 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 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 <SOCGN.PA>.
(Reporting by Jana Mlcochova; editing by Patrick Graham, John
Stonestreet)
