Disclosure of the outcome of the EU-wide stress test for the Slovenian bank
Main features of the stress test and the outcome for Nova Ljubljanska banka:
Based on the mandate given by the EU Economic and Financial Affairs Council (ECOFIN), the exercise, coordinated by the Committee of European Banking Supervisors (CEBS), was conducted in ninety one European banks in cooperation with the national supervisory authorities and the ECB. The exercise was targeted at covering at least 50% of the individual banking system. On this basis, six banks from the Republic of Slovenia were tested.
Nova Ljubljanska banka is the only Slovenian bank with predominant domestic ownership that was subject to the EU-wide testing, for which the outcome will be published by Bank of Slovenia. The outcome of the stress testing for other banks operating in Slovenia, with predominant foreign ownership, SKB, UniCredit banka Slovenije, Banka Koper, Raiffeisen bank and Sparkasse, will be disclosed by foreign supervisory authorities as part of the consolidated results of foreign bank groups, which these banks are part of. All the banks in question account for a 51,3% market share in the Slovenian banking system.
The objective of the stress test exercise is to assess the overall resilience of the EU banking sector to hardly expected but possible shocks in the area of credit, market and sovereign risks, and to establish the possible need for public support measures. The impact of the hypothetic unfavourable scenarios on banks is estimated for the years 2010 and 2011.
The EU-wide stress testing is made in addition to the regular supervisory procedures and methods used in the monitoring and measurement of the exposure of Slovenian banks to risks and to the stress-testing conducted each year by the banks themselves in line with Slovenian and the European legislation (Directive 2006/48/ES).
The scenarios, the methodology and the key assumptions were provided by CEBS (see the report on aggregate results published at http://www.c-ebs.org/EuWideStressTesting.aspx). Therefore, the macroeconomic variables like GDP growth, inflation rate, unemployment rate, interest rates changes, securities haircuts, and other parameters like PD and LGD were predefined and taken into account by the Bank of Slovenia at the interpretation of the outcome.
The outcome of the stress test conducted in Nova Ljubljanska banka shows that, as a result of the assumed shock under the adverse scenario, the Tier 1 capital ratio would change to 7,4% in 2011 compared to 7,5% as of end of 2009. An additional sovereign risk scenario could have a further impact of 1,1 percentage point, bringing it to 6,3% at the end of 2011. The result suggests a buffer of EUR 38,2 million of the Tier 1 capital against the threshold of 6% of Tier 1 capital adequacy ratio for Nova Ljubljanska banka. The 6% threshold was prescribed for the purpose of the exercise only, according to legislation the regulatory minimum of the Tier 1 capital is set at 4%.
The interpretation of the outcome of the exercise does not necessarily reflect the current situation and the possible outcome of the bank operation in the coming years. Different scenarios under different assumptions may produce different outcomes.
More information on the scenarios, methodology, aggregate and detailed individual results is available from CEBS at http://www.c-ebs.org/EuWideStressTesting.aspx.
Additional information: Stress tests