Czech c.bank says banks resilient, property hot

PRAGUE, June 10 (Reuters) - The Czech banking sector is not threatened by a U.S.-style mortgage crisis and banks are resilient to the risks they face despite an expected rise in defaults, the central bank said on Tuesday.

"According to stress tests, the financial sector is currently resilient to the market, credit and some specific risks to which it is exposed," the bank said in its annual Financial Stability Report.

"The main risks include a further deepening of the credit crisis in the advanced economies, a more pronounced slowdown in economic growth abroad and a continued very strong exchange rate of the crown," it said.

It said defaults may rise among exporters, mortgage holders and low-income households and there were signs of overheating on the real estate market.

The Czech banking sector is dominated by units of west European banks - KBC's (KBC.BR: Quote, Profile, Research, Stock Buzz) Ceskoslovenska Obchodni Banka, Societe Generale's (SOGN.PA: Quote, Profile, Research, Stock Buzz) Komercni Banka (BKOMsp.PR: Quote, Profile, Research, Stock Buzz), Erste Bank's (ERST.VI: Quote, Profile, Research, Stock Buzz) Ceska Sporitelna are the biggest players.

Banks raised combined profits by 24 percent last year to 47.2 billion crowns ($2.99 billion) on growing lending in the central European economy, whose gross domestic product rose by 6.6 percent in 2007.

This year, a GDP slowdown to 4-5 percent is expected due to lower household demand and weaker growth in the euro zone.

Fast price growth on the real estate market pointed to overheating, it said.

"Although the property market growth still cannot be regarded as a bubble and the rise in prices as manifestly unbalanced, there are some indications that the market is overheating," the report said.