CNB statement on Moody’s report The CNB very closely monitors flows of funds from Czech banks to their foreign parent banks

In the CNB’s opinion, the Moody’s report brings nothing fundamental or surprising for the Czech banking sector. With its assessment the agency is responding to the worse overall economic environment in Europe, i.e. not to the specific situation of Czech banks. It still holds true that Czech banks are sound, well capitalised and subject to close supervision by the Czech National Bank.

The tools which the CNB has available in the area of financial market regulation and supervision enable it to supervise flows of funds from Czech subsidiaries to their foreign parent banks effectively. We therefore currently assess the risk of withdrawal of capital from Czech banks as less serious, a fact also recognised by Moody’s itself in its report. Moreover, the average exposure of Czech banks to foreign parent banking groups has long been well below the statutory limit of 25%. The CNB closely supervises this exposure and banks are required, among other things, to report in advance any planned transactions that would have a significant effect on their exposure and liquidity.

However, Moody’s report confirms our perception of the potential risks arising from the proposals made at EU level for changes to the European regulatory and supervisory framework. From the CNB’s perspective, some of these changes might relax the flows of capital within banking groups too much. The problems of parent banks stemming from the worse economic environment in Europe do not necessarily imply a threat to the stability of Czech banks if the tools that the CNB has available in the area of financial market regulation and supervision remain at least at the current level in future.

The Czech National Bank subjects the entire banking sector to regular stress tests. The latest stress test results, published at the start of this week, confirm that the banking sector is sufficiently stable with regard to potential adverse shocks. The capitalisation of the entire sector would remain above the regulatory minimum of 8% even in a significant stress scenario combining negative developments in the domestic and external economy and renewed uncertainty on financial markets caused by an escalation of the fiscal crisis in the indebted euro area countries.