* All scenarios show sector will have sufficient capital
* Bad loans to rise above 10 pct
* Capital need seen small even in worst-case scenario
(Adds details, quote, background)
By Jana Mlcochova
PRAGUE, Feb 23 (Reuters) - Stress tests showed the Czech
banking system will maintain sufficient capital adequacy in all
projected scenarios, the central bank said on Tuesday.
Czech banks have avoided losses in the global financial
markets crisis thanks to a high level of domestic savings, small
holdings of toxic assets and a small proportion of lending in
foreign currencies.
But the economic downturn hit banks' balance sheets,
reversing years of double-digit profit growth.
They now face rising costs from provisioning for bad loans,
which banks expect to peak later this year.
"Banks survived the crisis in a good shape, the results were
very solid, therefore they are in a good condition for the years
ahead," Jan Frait, deputy chief of the central bank's economic
research and financial stability department, told a news
conference.
Risks to overall financial stability will remain high but
the banking sector was seen to be able to resist all potential
unfavourable shocks, the tests showed.
Aggregate capital adequacy will remain above the regulatory
8 percent minimum in all three projected scenarios, although
several banks may face the need to slightly raise capital in the
two more pessimistic scenarios out of three.
The most pessimistic scenario however saw the need to hike
capital in the banking system by just 13 billion crowns ($691.5
million).
The overall capital adequacy of the banking system was
around 13 percent at the end of 2009, high above the regulatory
minimum of 8 percent.
The baseline scenario is based on the bank's staff forecast,
assuming GDP growing by 1.4 pct this year.
The most pessimistic one, called "loss of confidence",
assumes a steep rise in money market rates and bond yields, and
a currency weakening.
COST OF RISK ON THE UPSIDE
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 rising cost of risk along with sluggish growth in income
proved to be the main burden for 2009 performance of Komercni
Banka and CSOB which have already reported results.
The baseline projection saw corporate non-performing loans
to rise to above 10 percent of all loans from the present level
of around 8 percent, Frait said.
Retail non-performing loans should be around 5 percent. The
other two scenarios saw the upturn in non-performing loans
significantly higher.
CSOB, the Czech Republic's largest bank by assets, saw its
non-performing loan portfolio ratio rise to 3.23 percent from
2.18 percent last year. []
Loan provisions at Komercni Banka <>, the only
listed Czech bank, almost doubled in the full year 2009, rising
to 5.35 billion crowns from 2.82 billion crowns in 2008.
[]
Erste's <ERST.VI> Ceska Sporitelna, the second largest bank
by total assets, is due to release earnings on Friday.
(Additional reporting by Jan Lopatka; editing by Stephen
Nisbet)
