Featured Product

    CNB Publishes Results of Stress Tests on Banks and Insurers

    December 13, 2019

    CNB published the results of supervisory stress tests conducted on banks and insurance companies, using data as of the end of 2018. The results of the stress tests demonstrated that the two sectors are still prepared to withstand a deterioration in economic conditions. The supervisory stress tests will be conducted at two-year frequency, with CNB planning to conduct the next supervisory stress tests in 2021. However, CNB may revert to the annual stress test in the event of significant changes in the financial or macroeconomic situation or other material facts.

    For the supervisory stress tests of banks, CNB, for the second time, applied the EBA methodology, adjusted to the conditions of the Czech banking sector. The tests were extended from the largest banking groups, which were tested last year, to almost all banks subject to CNB supervision. Thus, the tested banks account for nearly 91% of the assets of the Czech banking sector (as compared to 76% last year). The tests covered credit, market, and operational risks; interest and non-interest income and expenses; and capital. The aggregate results of the supervisory stress tests of banks subject to CNB supervision confirmed that the banks are resilient to hypothetical adverse economic developments. The capital ratio of the part of the banking sector tested would drop to 14.8% under a stress scenario assuming a sizable decline in economic activity in the Czech Republic and abroad. However, it would remain well above the regulatory minimum of 8%. The resilience of banking groups is based mainly on their initial capital ratio, which amounted to 18.4% at the end of 2018. As usual, credit risk had the most significant impact of the risks under review.

    Additionally, 18 domestic insurance companies, which account for 98% of the domestic insurance market in 2018 based on gross premiums written, participated in the 2019 supervisory stress tests for insurance companies. The stress test assessed the impact of shocks for individual risks on each insurance company’s solvency ratio (that is, the ratio of eligible own funds to the solvency capital requirement). The focus was on testing the impact of investment risks, the risk of claims due to natural disasters, the risk of a decrease in non-life insurance premiums, and the risk of an immediate lapse of 10% of the life insurance portfolio of an insurance company. The aggregate results of the stress test demonstrated that the insurance sector had sufficient own funds to absorb relatively significant changes in risk factors at the end of 2018. The overall solvency ratio of the tested insurance companies was 157%, even after the application of shocks for market and insurance risks and was, thus, relatively high above the regulatory minimum of 100%. Out of the risks under review, equity risk and the risk of a drop in government bond prices had the largest impact.

     

    Related Links

    Keywords: Europe, Czech Republic, Banking, Insurance, Stress Testing, Solvency Ratio, Credit Risk, CNB

    Featured Experts
    Related Articles
    News

    APRA Updates Validation and Derivation Rules in September 2020

    APRA updated the lists of the Direct to APRA (D2A) validation and derivation rules for authorized deposit-taking institutions, insurers, and superannuation entities.

    September 24, 2020 WebPage Regulatory News
    News

    EC Proposes Frameworks for Crypto-Assets and Operational Resilience

    EC adopted a package that includes the digital finance and retail payments strategies and the legislative proposals for regulatory frameworks on crypto-assets and digital operational resilience.

    September 24, 2020 WebPage Regulatory News
    News

    ECB Publishes Opinion on Proposals to Amend Securitization Framework

    ECB published an opinion (CON/2020/22) on proposals for regulations amending the securitization framework of EU, in response to the COVID-19 pandemic.

    September 24, 2020 WebPage Regulatory News
    News

    FCA Consults on Regulation of International Firms in UK

    FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.

    September 23, 2020 WebPage Regulatory News
    News

    MAS Amends Notice on Capital Adequacy Requirements of Banks

    MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.

    September 23, 2020 WebPage Regulatory News
    News

    FCA to Begin to Move Firms to New Data Collection Platform RegData

    FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.

    September 23, 2020 WebPage Regulatory News
    News

    ISDA Expects IBOR Fallbacks to be Effective by End of January 2021

    ISDA issued a letter to regulators to flag that it now expects the supplement to the 2006 ISDA Definitions and the Interbank Offered Rate (IBOR) Fallbacks Protocol to be effective around mid- to late-January 2021.

    September 23, 2020 WebPage Regulatory News
    News

    APRA Reviews Repayment Deferral Plans, Identifies Best Practices

    APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Assess Risks to Financial Sector After COVID-19 Outbreak

    ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.

    September 22, 2020 WebPage Regulatory News
    News

    BoE Confirms Withdrawal of COVID Corporate Financing Facility

    BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.

    September 22, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5836