“So, I think there is work to be done, but I think actually the focus of attention is more on other banks – and also on the banks that weren’t included in these stress tests”.
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A few, however – including those listed at top – appeared to be financially shaky, with worryingly low core capital ratios. Commerzbank and Deutsche Bank, two large German institutions, also turned in lacklustre performances. ‘There remains work to do’.
Each bank was then graded by what its predicted core equity capital ratio – the difference between a bank’s assets and its investments including debts – would be in those circumstances.
“While a number of individual banks have clearly fared badly, the overall finding of the European Banking Authority – that Europe’s banks are resilient to another crisis – is heartening”, Anthony Kruizinga at PwC said. Royal Bank of Scotland dropped 1.75%, while Banco Santander (SAN) fell 1.9%.
The health check of 51 lenders in the European Union was carried out by the European Banking Authority and assessed how much capital banks would use up in adverse conditions, including an economic downturn. Britain’s worst performing bank was Barclays.
The bank, working with USA bank JP Morgan and Italy’s Mediobanca, has submitted a plan to shift the bad loans with the help of the Atlante fund, created specifically to take on doubtful banking assets. Under the scenario of the stress test, it was calculated that the bank’s common equity Tier 1 ratio would fall into the negative, reaching -2.44 percent.
Ewen Stevenson, RBS’s chief financial officer, said the stress tests demonstrated the bank’s continued progress towards transforming the RBS balance sheet to being safe and sustainable. Its exercise tested 51 European banks and covered approximately 70% of all banking assets in the EU.
Analysts have informally set a basic pass mark of 5.5 percent, which was the threshold set in last year’s test.
‘What is more important to the United Kingdom banks is the Bank of England stress testing exercise for which the next round of results will be due towards the end of the year’. Alternatively, banks could face tougher “qualitative measures” such as improving risk controls. Monte dei Paschi duly announced on Friday that it was raising €5bn (£4.2bn) in capital from private sources.
Monte dei Paschi, Italy’s third largest lender, has been racing to pull together a rescue plan and win approval for it from the European Central Bank ahead of the test results.
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But the bank’s board on Friday approved a plan to unload some of its nonperforming loans (http://www.marketwatch.com/story/monte-dei-paschi-board-approves-bad-loan-plan-2016-07-29) and raise fresh capital, moves aimed at fending off a government bailout. The Italian treasury in a statement said it was satisfied with the deal and that no state money would be necessary to help the bank.
