The Polish banking system is well capitalised and liquid, as confirmed by stress tests results.
Polish banks are, in aggregate, resilient even under severe adverse scenarios. Some small banks could fail to meet minimum regulatory capital and liquidity requirements in these scenarios, but with little impact on the overall banking system.
Top-down solvency tests were conducted to assess the resilience of the banking system to adverse macro-economic scenarios. The tests covered 20 institutions representing 85 per cent of the assets in the system. Two separate tests, covering a five-year horizon, were conducted by the central bank and the Financial Sector Assessment Programme (FSAP) team.
Each test comprised four different scenarios: a baseline scenario and three different recession scenarios. Both tests showed that only small banks, together representing up to 30 per cent of the assets in the system, may have problems meeting the Basel III capital requirements in the recession scenarios.
Some caution is required when interpreting the results of the FSAP top-down balance sheet solvency tests. The tests were conducted using representative banks since data confidentiality constraints prevented conducting them using individual bank data. The impact of the adverse shocks on the representative banks, however, may not necessarily reflect the reaction on the individual banks. To complement its balance sheet test, the FSAP team conducted market-based solvency stress tests, which showed some smaller banks could face substantial declines in their capital asset ratios.
No bottom-up solvency tests were conducted specifically for the FSAP update. The Financial Supervision Authority (KNF), however, shared with the FSAP team the distribution of results corresponding to the annual regulatory bottom-up stress testing exercise conducted in 2012. While the scenarios were different and the horizon shorter (1½ years), the results were consistent with those of the top-down solvency tests.
A top-down liquidity stress test suggested the banking system could withstand large liquidity shocks. The test was conducted by the National Bank of Poland (NBP) and considered the simultaneous realisation of several shocks including the withdrawal of foreign funding and domestic deposits among other shocks. Some small banks, representing 10 per cent of assets in the system, could face difficulties covering liquidity needs. The forced sale of liquid assets could put some pressure in the secondary market for government bills and bonds.
The solvency and liquidity tests were complemented with a comprehensive set of sensitivity tests. These tests, also conducted by the NBP, comprised counterparty risk shocks, credit shocks, FX shocks, housing price shocks, and interest rate shocks.
Counterparty risk shocks were the most severe, with banks breaching the minimum capital requirement representing around 14 per cent of assets in the system. The impact of market risk shocks on credit losses and/or liquidity needs was small.
Interconnectedness risk in the system is limited. No specific contagion test was conducted in the context of the FSAP update. The central bank, however, shared detailed results of the domino-effect simulation reported in its December 2012 report. The results showed that only three commercial banks could trigger second round defaults, with the banks affected representing less than 2 per cent of the assets in the system.
All the tests suggest the banking system is well capitalised to withstand large shocks. Small banks, however, could benefit from strengthening their capital base. Greater integration of the top-down stress tests and bottom-up stress test exercises will lead to stronger banking system surveillance and better-informed supervisory policy.
Full assessment
© International Monetary Fund
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