36 domestic banks conducted the stress tests in 2018 by referencing methodology adopted by advanced economies. It was the first time that they applied two-year period stress tests, covering adverse and severely adverse scenarios. The main risk factors were the increased credit risks, resulted from the macroeconomic downturns (the slump economic growth rates of Taiwan, the US, Europe, China and Japan, the rising domestic unemployment rates, and the falling price of real estate), and the dramatic volatility of market prices (in the markets of bonds, stock, FX and commodities) and other factors that could increase losses, and impact on earnings, given reduced credit spread and decreased fee income. The banks were required to calculate the capital adequacy and leverage ratio under these stress scenarios.
According to the 36 domestic banks’ results of the stress tests, under the adverse scenario, the average Common Equity Tier 1 Ratio, Tier 1 Capital Ratio, Capital Adequacy Ratio and Leverage Ratio were 10.67%, 11.27%, 13.61% and 6.17% for the first year, respectively; and 10.90%, 11.51%, 13.79% and 6.29%, respectively, for the second year. Under the severely adverse scenario, the above ratios were 9.72%, 10.33%, 12.63% and 5.65% for the first year, and 9.32%, 9.93%, 12.19% and 5.43% for the second year. These ratios were all higher than the minimum requirements, indicating that domestic banks still have stable risk taking capabilities and capital adequacy if the global economic and financial conditions become adverse.