Stability of the Slovenian banking system confirmed in this year’s bank of Slovenia stress tests

The macro stress tests, which take a top-down approach, are one of the tools used to identify potential systemic risks. They assess the impact of baseline and adverse macroeconomic scenarios on bank balance sheet items, profitability and solvency. On the basis of the macro stress tests an assessment can be made of the potential impact and the consequences for the stability of the banking system if the unlikely but plausible systemic risks assumed under the macroeconomic scenario are realised.

The macro stress tests complement the supervisory stress tests, which take a bottom-up approach. The bottom-up supervisory stress tests focus on an assessment of stability for each individual bank, and are therefore conducted at the commercial banks themselves under the guidance of the supervisory authority, using internal models and more-detailed data. The macro stress tests are based on applying the same methodology to all banks, and on the data available to the Bank of Slovenia from the banks’ regulatory reporting.

The Bank of Slovenia covered a period of three years in this year’s macros stress tests, i.e. from 2019 to the end of 2021, based on data from the end of 2018. Two macroeconomic scenarios were used. The baseline scenario considers the most likely macroeconomic developments until 2021, and is based on the Bank of Slovenia’s latest macroeconomic projections for Slovenia. The adverse scenario is determined by a deviation from the baseline scenario as defined within the framework of the EBA’s EU-wide stress tests of 2018, and entails a potential deterioration in the macroeconomic situation (a cumulative decline in GDP of 2.3% over the three years of the adverse scenario).

On the basis of the simulations, the Bank of Slovenia finds the Slovenian banking system to be stable. The banking system discloses sufficient capital adequacy under the baseline scenario and under the adverse scenario alike. These results are a consequence of Slovenian banks being relatively well-capitalised, and of having improved the quality of their credit portfolios, which is the result of the successful reduction of non-performing exposures in recent years.

The macro stress tests, which take a top-down approach, are one of the tools used to identify potential systemic risks. They assess the impact of baseline and adverse macroeconomic scenarios on bank balance sheet items, profitability and solvency. On the basis of the macro stress tests an assessment can be made of the potential impact and the consequences for the stability of the banking system if the unlikely but plausible systemic risks assumed under the macroeconomic scenario are realised.

The macro stress tests complement the supervisory stress tests, which take a bottom-up approach. The bottom-up supervisory stress tests focus on an assessment of stability for each individual bank, and are therefore conducted at the commercial banks themselves under the guidance of the supervisory authority, using internal models and more-detailed data. The macro stress tests are based on applying the same methodology to all banks, and on the data available to the Bank of Slovenia from the banks’ regulatory reporting.

The Bank of Slovenia covered a period of three years in this year’s macros stress tests, i.e. from 2019 to the end of 2021, based on data from the end of 2018. Two macroeconomic scenarios were used. The baseline scenario considers the most likely macroeconomic developments until 2021, and is based on the Bank of Slovenia’s latest macroeconomic projections for Slovenia. The adverse scenario is determined by a deviation from the baseline scenario as defined within the framework of the EBA’s EU-wide stress tests of 2018, and entails a potential deterioration in the macroeconomic situation (a cumulative decline in GDP of 2.3% over the three years of the adverse scenario).

On the basis of the simulations, the Bank of Slovenia finds the Slovenian banking system to be stable. The banking system discloses sufficient capital adequacy under the baseline scenario and under the adverse scenario alike. These results are a consequence of Slovenian banks being relatively well-capitalised, and of having improved the quality of their credit portfolios, which is the result of the successful reduction of non-performing exposures in recent years.