EBA publishes results of the 2011 EU-wide stress test of the banking sector

The European Banking Authority (EBA) published today (15 July 2011) the official results of its EU-wide stress test of the banking sector. In connection with this publication, Národná banka Slovenska provides the following information:

The stress test had the objective of assessing the resilience of the EU banking system against adverse but still plausible macroeconomic scenarios (stress scenarios).

Stress testing is a routine means of supplementing information about individual institutions regarding their risk profile and their sensitivity to particular types of risks or to potential developments in the economy and financial markets. The stress scenarios are therefore theoretical; they are not forecasts of what may happen in the financial markets or economy in a given period.

The stress test was conducted on 90 banks in 21 countries; the assets of these banks constitute more than 65% of the total assets of the EU banking sector and at least 50% of the assets of the banking sector in each Member State.

In the stress testing, the EBA put emphasis on maintaining consistency in the estimates for all banking groups. It also ensured that the risk profiles of individual banks were subjected to a peer review process.

The only Slovak banks covered by the stress test exercise were those belonging to one of the consolidated groups under review. Thus, the results do not reflect the risk profiles of individual Slovak banks.

Seven of the stress-tested banking groups have subsidiaries in Slovakia, and six of them reported satisfactory capital adequacy in the stress scenarios (i.e. the Core Tier 1 ratio indicator was well above the 5% threshold at the end of the stress period). The only one of these groups that reported a Core Tier 1 ratio of less than 5% was Oesterreichische Volksbanken AG (4.5%). This shortcoming was not, however, caused by the results of the Slovak subsidiary, and therefore the onus to adopt remedial measures is on the Austrian Financial Market Authority and Austrian Government, which have begun to take steps in this regard. NBS notes that Oesterreichische Volksbanken AG, despite its unfavourable stress test results, had an adequate capital ratio under the standards defined in the Austrian Banking Act and in the stress scenario, according to statements from the Austrian FMA. The diverging results are due to the EBA’s different approach in defining capital instruments for loss coverage.

NBS and the Slovak Ministry of Finance will be kept informed on regular basis of the measures planned or taken in this matter; they will see that the Slovak subsidiaries operate reliably and that the customers/creditors of these banks are not put at risk.

NBS periodically conducts its own stress tests of the Slovak financial sector, which involve testing the resilience of individual financial institutions to adverse macroeconomic scenarios. The most recent stress test exercise was carried out as at 31 December 2010.

The results of this stress test showed that the banking sector’s reslience to adverse macroeconomic scenarios was relatively robust. As regards the interpretation of results, NBS notes that the stress scenarios used in its stress test were stricter than those used by the EBA.

Detailed results of the NBS stress test and information about their methodology may be found in the Analysis of the Slovak Financial Sector for 2010:

Further information about the EBA stress test of banks is available at the EBA website: http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing

National Bank of Slovakia
Press and Editorial Section
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2142, +421-2-5865 2142, +421-2-5787 2169, +421-2-5865 2169
Internet: http://www.nbs.sk

Reproduction is permitted provided that the source is acknowledged.