The central bank tested how local lenders would be affected under adverse economic conditions, including a sharp and continuous depreciation of the local currency, of over 20% against the euro, a two-year recession, higher borrowing costs and economic downturn in the eurozone.
“The results of the stress test regarding the solvency ratio of the banking system indicate the system is generally well positioned to withstand significant macroeconomic shocks while preserving an adequate solvency ratio level,” the central bank said.
The central bank’s projections cover the period between the third quarter of 2013 and the second quarter of 2015. The data were included in the latest Financial Stability Report published Monday on the central bank’s website.
Under the worst-case scenario, only a limited number of banks with no systemic impact could need cash injections, even when the solvency ratio would drop by almost 4 percentage points to 10.8% from 14.7% in June 2013.
“This can be explained by the banks’ current portfolio structure, which includes fewer loans in the segment of interest-carrying assets compared with previous years. The lack of capacity to generate significant operating profits as the primary source to cover losses triggered by deteriorating quality of the financial assets is the main reason for the results obtained by these credit institutions,” the central bank said.
According to the tests, the main vulnerabilities in the local banking system are the high level of non-performing loans and the potential acceleration of cross-border deleveraging.
However, the vulnerabilities remain manageable, the central bank said.