On 13 March the newspaper
Hospodářské Noviny (HN) published an interview with Pavel Kysilka, Chairman
of the Board and CEO of the commercial bank Česká spořitelna (Česká spořitelna
a.s.). In the interview Kysilka revealed
that in 2013 the bank plans to reduce expenses by two billion Czech koruna (€ 39.0
mln), with half a billion of this to come through reductions in personnel
costs: the laying off of roughly 600 staff and reductions in the amounts of
bonuses.
This announcement
comes just two weeks after Česká spořitelna announced a net consolidated profit
for 2012 of CZK 16.612 bln (€ 660.5 mln), up 21.8% from the year before. But the bank is 97.99% owned by Erste Group
Bank AG of Vienna, Austria, and HN quotes Milan Lávička, an analyst with
J&T Banka, as concluding that this move should be seen as coming from the
parent company, as the latter had previously announced that it intended for all
of its banking subsidiaries to reduce costs in the coming two years.
In 2012 Česká
spořitelna was chosen “Best Bank in the Czech Republic Czech Republic 31 December 2012 one euro equaled 25.15 CZK.)
Sources:
Announcement of Česká spořitelna’s results for 2012: Česká
spořitelna zvýšila v roce 2012 konsolidovaný čistý zisk (IFRS) o 21,8 % na
16,61 mld. Kč, provozní zisk se zvýšil o 2,5 % na 26,29 mld. Kč (2013-02-28
07:30 )
Also on 13 March, the
Czech commercial bank Raiffeisenbank (Raiffeisenbank a.s.) announced preliminary
results for the year 2012. In 2012 the
bank earned a net profit of CZK 1.973 bln (€ 78.45 mln), down 11.1% percent
from the result of CZK 2.220 bln for the previous year. The bank’s total assets ended the year at CZK
197.6 bln (€ 7.857 bln), down 2.6% from the preceding year. Total deposits at yearend were CZK 144.1 mln
(up 0.1%), while total loans were CZK 150.1 mln (down 5.3%).
Raiffeisenbank a.s.
is owned 51% by Raiffeisen Bank International AG (“RBI”), 25% by RB
Prag-Beteiligungs GmbH, and 24% by Raiffeisen Zentralbank Österreich AG (“RZB”).
Sources:
Press release: Tiskové zprávy:
Raiffeisenbank loni vykázala zisk 1,9 miliardy Kč (2013-03-13)
Annual report for 2011: Výroční
zpráva 2011 Raiffeisenbank a.s.
In other news, on 7
March the Czech National Bank (Česká národní banka – CNB) published on its
website a working paper regarding its stress-testing methodology for the
banking sector. The paper, written in
December 2012 in English, outlines the methodology, assumptions, and
macroeconomic models used by the CNB in carrying out “macro” stress testing,
i.e., testing of the entire banking sector as a whole rather than of individual
banks. Below are reproduced in full the paper’s
abstract, the non-technical summary, and the conclusion.
Abstract
This paper describes the
current stress-testing framework used at the Czech National Bank to test the
resilience of the banking sector. Macroeconomic scenarios and satellite models
linking macroeconomic developments with key risk parameters and assumptions for
generating dynamic stock-flow consistent behavior of individual bank
balance-sheet items are discussed. Examples from past CNB Financial Stability
Reports are given and an emphasis is put on conservative calibration of the
stress-testing framework so as to ensure that the impact of adverse scenarios
on the banking sector is not underestimated.
Nontechnical Summary
This paper describes the current stress-testing
framework used at the Czech National Bank (CNB) for testing the resilience of
the banking sector. The paper discusses the main challenges tackled by the CNB
when developing the framework, such as relatively short time series, limited
data availability, structural breaks in data reflecting changes in banks’
behavior, and different horizons of impact of various shocks.
We focus on all the main building blocks of the
stress-testing framework, i.e., the macroeconomic scenarios, the development of
so-called satellite models, which serve as a link between the trajectories of
the main macroeconomic variables provided by the CNB’s official prediction model
and the trajectories of key variables of financial sector risks, and the
various behavioral assumptions in the stress tests, such as the capital
adequacy ratios targeted by individual banks with a direct impact on their
dividend policies. The CNB uses satellite models to estimate the evolution of
credit risk, credit growth, property prices, recovery rates, and operating
profit, most of them estimated within a simple ARIMAX (AutoRegressive
Fractionally Integrated Moving Average) or ARDL (AutoRegressive Distributed
Lag) framework.
The current stress-testing methodology is in line with
the recommendations of the recent literature for a robust and reliable
framework. The tests have a three-year horizon with consistent quarterly modeling
of the main bank balance sheet items and make use of the Basel formula for the
IRB (Internal Rating Based) approach to projecting risk-weighted assets. As the
risk jeopardizing the banking sector might be rapidly evolving, the paper also
debates the possibility of testing different ad-hoc shocks, including
concentration risk in portfolios, the risk of excessive dividend payouts, default
of cross-border interbank exposures, and sovereign risk in banks’ balance
sheets. The methodology is illustrated empirically on the stress-test results
from Financial Stability Report 2011/2012 published in June 2012 with a stress
scenario entitled Europe in Depression capturing the relevant risks for the
Czech economy as assessed in mid-2012.
The paper argues that the
stress-testing methodology should be set in a conservative way and should slightly
overstate the risks, since the estimated elasticities in models may change significantly
for the worse when risks materialize. Conservative calibration of stress tests
ensures that the impact of shocks on the banking sector will not be
underestimated in the event of adverse developments.
[...]
6. Conclusion
This paper described the current stress-testing
framework for testing the resilience of banks in the Czech Republic. The
stress-testing framework as a whole is built on the official CNB projection model
of DSGE type (g3), a number of satellite models, and the dynamic linkages of
the models, allowing banks’ balance sheets to be modeled at quarterly frequency
over a period of three years. A number of ad-hoc shocks and a considerable
level of expert judgment are equally important components of the CNB’s stress
tests. The gradual development of the CNB’s stress-testing methodology over the
last ten years is discussed to illustrate the main challenges in stress testing
and how these challenges, including those brought about by the global financial
crisis and the European debt crisis, might be tackled. Even though the models
have recently undergone significant improvements, given the experience of the
global financial crisis as well as the discussion on the role of stress testing
in current macroprudential policy, the stress-testing framework will be further
developed in the future.
The main lessons from the development of robust and
well-functioning stress tests are as follows.
First, the framework must be calibrated
conservatively, as the estimated elasticities in satellite models may change
significantly for the worse when risks materialize. Conservative calibration of
stress tests ensures that the impact of shocks on the banking sector will not
be underestimated in the event of adverse developments.
Second, the assumed shocks should be harsh enough to
capture low-probability, high-impact events. This relates both to the
calibration of macroeconomic shocks in alternative scenarios and to various
ad-hoc shocks, such as defaults by large borrowers or losses on large exposures
to parent banks or sovereigns.
Third, the framework must be continuously updated and
improved to reflect new data availability, longer time series, and new possible
risks emerging, judging from the evolution of bank exposures. A regular
backtesting exercise assessing the accuracy and robustness of the stress-test models
and assumptions should be an integral part of a good framework
Fourth, the solvency stress-testing framework should
ideally become more and more interlinked in a consistent manner with the
liquidity stress-testing framework, reflecting the side-effects of both
solvency and liquidity (see Geršl et al., 2011; CNB, 2012).
Finally, the stress tests
should be actively used in policy and the results regularly published and discussed
by professional analysts, as they are an important communication tool and help
manage economic expectations. While there is a general discussion ongoing on
the role of stress testing in macroprudential policy (Borio et al., 2012; Ong
and Čihák, 2010), the experience of the CNB supports the view that central
banks should be relatively open and transparent also in this area.
Source:
Mark Pleas
[contact]
