Macroprudential Risk Scanner

The overall assessment of the exposure of the financial services sector to systemic risks in the third quarter of 2021 was kept at a moderate level with a slight decrease with respect to the first quarter of 2021. Despite the economic recovery that was stronger than initial expectations, the most pronounced risks remain related to trends in the macroeconomic environment, given the worsening of the fiscal position associated with fiscal response to health and economic consequences of the pandemic. The more and more increasing risk is also posed by the rising uncertainty about the nature and duration of inflationary pressures and the consequential reaction of economic policy makers. Although reduced relative to 2020, risks arising from trends and conditions in financial markets in the circumstances of uncertainty increased by inflation may distort and slow down economic recovery, which will significantly depend on the dynamics and intensity of normalisation of monetary policies, particularly in relation to market expectations. The likely normalisation of monetary policies could thus, given the high level of interest rate risk assumed by financial institutions in search for yield over a multi-year period of low interest rates, also have a negative impact on the value of their investments in debt securities. It is precisely interest rate risk combined with a high level of concentration of investment in government bonds that is the most pronounced long-term structural risk to which the domestic financial services sector is exposed. At the same time, general valuations in global stock markets continue to be separate from business indicators and the risk of a sudden stronger global price adjustment remains elevated. Therefore, the current decrease of short-term cyclical risks arising from the operations of the domestic financial services sector in the event of distortions and corrections in global markets through spillover to shallow and poorly liquid domestic capital market can easily be reversed by materialisation of market risk with negative consequences on profitability, i.e. yields of the financial services sector.

The publication Macroprudential Risk Scanner provides insight into the process of identifying, assessing and monitoring the evolution of systemic risks in the financial services sector under Hanfa’s supervision, in order to timely take appropriate measures to prevent their materialisation and the impairment of the financial system stability. The objective of the publication is to contribute to a better understanding of systemic risks, stimulate action planning and measures that prevent the materialisation of such risks and provide adequate protection against the consequences of their materialisation with the aim of strengthening the system's resistance to shocks, as well as to contribute to greater confidence in the financial system. The Macroprudential Risk Scanner is published four times in a year.

Macroprudential Risk Scanner No 9

Published: 12/12/2023 Publication: Macroprudential Risk Scanner Date: September 2023 Year of publishing: III ISSN: 2806-7142

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