Stress tests conducted by the European Central Bank (ECB) and Banka Slovenije have confirmed the stability of the Slovenian banking system, pointing out Slovenian banks would fare well even under unfavourable economic scenarios. Nevertheless, banks have been urged to stay cautious in the post-Covid landscape.
Given Covid-related challenges, the banks should continue to properly assess and manage credit risks, the Slovenian central bank Banka Slovenije said in a press release on Monday.
This year’s ECB bottom-up stress tests involved the Slovenian largest banks, NLB and NKBM. “The results of the tests indicate that the banks have maintained strong resilience even in hypothetical adverse scenarios,” Banka Slovenije added.
The central bank has also assessed the capital adequacy situation in Slovenian smaller banks, subsidiaries and the state-owned export and development bank, SID Banka. The results of the tests show that the banks’ capital buffers are sufficient to ensure the banks would fare well both under baseline and adverse scenarios.
The central bank has also found that the banks have reduced credit risks in the past three years and scaled-down exposure to market risks compared to major banks.
The banks have achieved progress compared to the results of the 2018 stress tests. Successful attempts to reduce non-performing exposure and curb operating costs have helped improve the banks’ standing on average. The drop in the capital ratio was more significant this year compared to 2018, but that has been mainly a result of changed economic circumstances. Credit and market risks created the strongest negative impact, the press release reads.
NLB and NKBM achieved slightly above-average results with the drop in the capital adequacy ratio under unfavourable scenarios mainly due to additional credit risk losses and lower net interest income.
The Common Equity Tier 1 (CET1) capital ratio of the two banks would fall by 3 – 5.99 percentage points, same as the ratios of most major banks in the EU (39 out of the 89 assessed in the latest ECB stress test).
The tests aimed to measure how individual banks would fare under hypothetical baseline and adverse economic developments in 2021-2023.