The European Banking Authority (EBA), which coordinated the test of 51 lenders from across the bloc, said the results showed there was still more work to do to put banks on a firmer footing.
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The EBA test looked at how banks could withstand a three-year theoretical economic shock which ended with the Italian lender, the world’s oldest have a core equity capital ratio of minus 2.44 percent.
“The EBA stress test results demonstrate our continued progress towards transforming the balance sheet to being safe and sustainable”, said CFO Ewen Stevenson in a statement.
Alongside RBS, the process involving 51 European institutions raised concerns about the performance of Barclays after the EBA found that its capital ratio (CET1) would fall from 11.4% to 7.3% under the stress tests.
The ECB says, “Although no singular event such as Brexit is assumed, the projections for the gross domestic product (GDP) of the euro area under the adverse scenario are more severe for every year of the stress test horizon than the negative effect on GDP growth foreseen by analysts as a result of Brexit”.
Other major banks that suffered sizable hits to their capital buffers included UniCredit SpA, Barclays PLC and Deutsche Bank AG. This much was evident from the caning taken by bank shares across Europe on Monday, when investors had the opportunity to pass judgment on the findings of the European Banking Authority, which were published after markets closed for business on Friday night.
The results do not mean that the banks failed the stress tests, which do not contain a pass/fail threshold.
“We are confident that in delivering our strategy, we will transform RBS into a low risk, resilient bank”, he added. Intesa Sanpaolo (ISNPY) and Banco Popolare (BPSAY) had CET1s of 10.2% and 9% respectively by the time that the adverse scenario had run its course.
Some experts flagged that while the tests bring transparency, the problems they have highlighted are still a long way from being addressed.
Analysts expect banks that performed poorly under the stress tests will need extra measures to strengthen their balance sheets, including clearing non-performing loans off their books and raising fresh capital.
Like Monte dei Paschi, Allied Irish Banks was also below the 5.5 per cent level at 4.31 per cent, but said it has undergone fundamental restructuring and is now sustainably profitable. Compared to five years ago, the ratio of highest-quality capital of European banks is now more than twice, ” said EBF Chief Executive Wim Mijs.
Banca Monte dei Paschi di Siena, which was founded in 1472, is one of a number of banks that fared worst in stress tests devised by the EU.
They showed an average core capital ratio of 13.2 percent in 2015.
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The figure is lower even than the 49.1 reading produced by the “flash” report produced by Markit last month.
