The European Banking Authority (EBA) has published the scenarios for the pan-European stress test for 2021.
The Cypriot banks, although not included in the sample of participating banks announced, will nevertheless participate in the exercise, the results of which will be integrated into the Srep Test process carried out by the Single Supervisory Mechanism (SSM). The results for the banks included in the sample will be announced at the end of July 2021.
The sample of banks includes 50 credit institutions from 38 countries under the jurisdiction of the SSM and covers about 70% of the banking sector in the EU and Norway. The threshold for participation in the stress test is set at assets in excess of € 30 billion.
“The exercise assesses the impact of the adverse macroeconomic scenario on the solvency of EU banks,” the EBA said, adding that the test allows supervisors to assess whether banks' accumulated capital reserves in recent years are sufficient to absorb losses. support the economy in difficult times.
The macroeconomic assumptions used for Cyprus predict in the basic scenario a growth rate of 4.1% in 2021, 3.4% in 2022 and 2.7% in 2023. In the unfavorable scenario, the growth rate is negative and stands at -0, 8%, -0.9% and -0.4% in 2021, 2022 and 2023 respectively.
Regarding the unemployment rate, in the basic scenario in 2021 unemployment is estimated at 7.1%, in 2022 at 6.8% and in 2023 6.3%. Contrary to the unfavorable scenario, unemployment stands at 8.1% in 2021 rises to 10% and increases further to 12.8% in 2023.
Based on the assumptions of the EBA, residential real estate prices in the baseline scenario will be 0.4% in 2021, 0.3% in 2022 and increase by 1.2% in 2023, while in the unfavorable scenario there is a decrease of 1.7 % in 2021 which increases to -2.0% and falls to -0.4% in 2022 and 2023 respectively.
Commercial real estate prices in the baseline scenario increase at a rate of 0.3% in the three years 2021, 2022 and 2023, while in the extreme scenario they show a significant decrease of 10.2% in 2021, which then falls to -6.8% and – 2.4% respectively.
In relation to price stability, inflation (harmonized CPI) in the baseline scenario is expected to reach 0.5% in 2021, 0.9% in 2022 and 1.4% in 2023, while in the unfavorable scenario it is maintained at negative course, ie -1.7% to -2.0% and -0.4% in 2021, 2022 and 2023 respectively.
As the EBA explains, the baseline scenario is based on the National Central Banks' forecasts for December 2020, while the adverse scenario adopts the realization of the financial risks demonstrated by the European Systemic Risk Council and also reflects the BBA estimates.
It is recalled that the Stress tests in 2020 were postponed due to the pandemic.
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