Czech banks remain highly resistant to adverse shocks and aggregate capital adequacy will remain above the 8 percent minimum even under stressed conditions, according to the Czech National Bank. The main risk for the banking sector would be an escalation of the Euro zone debt crisis, followed by a downturn in economic activity. The Czech economy slid into recession as result of government cuts that reduced household spending. The effect has been compensated for in part by rising exports. The government’s austerity drive, on the other hand, has helped Czech Republic to keep some of the lowest debt costs in Europe, writes Reuters. The results of the test, which assumed a 3-year recession, was that the Czech National Bank says that 12 banks would have to increase capital by CZK 14.6 bn, or 0.4 percent of gross domestic product. Further capital increases would be needed if banks had to write down exposure to their foreign parent groups, putting their capital needs up to 0.8 percent of GDP.
