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Stress test scenarios do not bode well

European-Banking-Authority-stress-testsTHE European Banking Authority (EBA) has published the methodology and the scenarios to be used for theĀ 2014 pan-European stress tests, which reveals adverse forecasts for unemployment and real-estate prices this year.

According to the EBA, the stress tests “will identify remaining vulnerabilities in the EU banking sector and will provide a high level of transparency into EU banks’ exposures”.

In Cyprus banks to undergo stress tests include Bank of Cyprus, Hellenic Bank and the Cooperative sector.

The Core Tier-1 capital of the banks undergoing the stress tests will have to be at least 8.0 per cent according to the baseline scenario and at least 5.5 per cent on the basis of the adverse scenario.

The adverse scenario for Cyprus foresees that GDP in 2014 will shrink by 1.5 per cent further than Cyprus’ international lenders, the troika (EC, ECB, IMF) predict and will reach 6.3 per cent while it will be contained at 0.5 per cent in 2015 with a modest 1.1 per cent of growth in 2016.

Unemployment will reach 19.6 per cent in 2014, will fall slightly to 19.4 per cent in 2015 and 18.4 per cent in 2016.

The adverse scenario predicts that inflation will be recorded at about 0.4 per cent in 2014, will go up to 0.8 per cent in 2015 and will reach 1 per cent in 2016.

On the basis of the adverse scenario stock prices in Cyprus will fall by 19.9 per cent in 2014, 20.6 per cent in 2015 and 26.6 per cent in 2016.

Residential property prices will fall by 4.0 per cent in 2014, 6.4 per cent in 2015 and 6.4 per cent in 2016. Real estate prices in general are predicted to go down by 11.9 per cent in 2014, 11 per cent in 2015 and 7.0 per cent in 2016.

Commercial property prices are forecast to reduce by 7.9 per cent in 2014, 6.5 per cent in 2015 and 3.0 per cent in 2016.

The adverse scenario foresees also that the impact of a shock in state funding will affect the increase of real GDP by 0.10 per cent in 2014, 0.21 per cent in 2015 and 0.29 per cent in 2016.

In as far as the baseline scenario for Cyprus in concerned GDP is expected to follow troika predictions according to which the economy will shrink by 4.8 per cent in 2014, achieving marginal growth of 0.9 per cent in 2015 and 1.9 per cent in 2016.

Unemployment will reach 19.2 per cent in 2014, will fall to 18.4 per cent in 2015 and will be reduced even further to 17.0 per cent in 2016, the baseline scenario predicts.

Inflation will range at about 0.4 per cent in 2014, will go up by 1.4 per cent in 2015 and 1.7 per cent in 2016.

Real estate prices in general are foreseen to fall by 7.0 per cent in 2014, 5.2 per cent in 2015 and 2 per cent in 2016.

At the same time commercial property prices are expected to go down by 4.9 per cent in 2014, 3.5 per cent in 2015 and 0.5 per cent in 2016.

– Cyprus News Agency