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One bank failed stress test

If the economy were to experience a steep drop, only one Slovak bank would have difficulty covering its losses, according to the results of stress tests carried out by the National Bank of Slovakia (NBS), the country’s central bank. Yet, the NBS will not disclose which bank is at risk, the Sme daily reported on May 11.

If the economy were to experience a steep drop, only one Slovak bank would have difficulty covering its losses, according to the results of stress tests carried out by the National Bank of Slovakia (NBS), the country’s central bank. Yet, the NBS will not disclose which bank is at risk, the Sme daily reported on May 11.

“We do not publish the individual results,” said spokesperson for NBS Petra Pauerová, as quoted by Sme.

The NBS carried out tests for the whole banking sector based on individual data from 2012, which it received from banks. It tested three models, one of which tested whether the banks have enough capital to cover risks amounting to 8 percent. It is a kind of security blanket that would absorb unexpected problems in the economy and protect the banks’ clients.

In this test none of the banks fell under the limit, which is considered to be crucial by NBS. If the central bank finds a bank has failed the test, it might force the financial institution to pass several measures, including re-assessing the risks or increasing the capital, Sme wrote.

Two further models pertain to poor development of the economy. One test showed that one bank would not have enough capital to cover its losses. For example, if the economy were to slump by 10 percent or has been in recession for a long period of time, this particular bank would have to find an additional €7.6 million. In the event that GDP were to fall at slower pace, but the drop lasted for more than one year, the situation at this particular bank would be worse since it would be in need of an additional €11.2 million, Sme reported.

Source: Sme

Compiled by Radka Minarechová from press reports

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