The Stoxx Europe 600 was off less than 1 point at 341.86 after having gained as much as 0.6% as bank stocks pulled higher in the wake of the European Banking Authority’s bank stress-tests results, released late Friday.
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The European Banking Authority tests suggested RBS would be left with just an 8% capital ratio buffer. The data reflect full application of Basel III standards. The European debt crisis, which began over five years ago created long-term systemic risks for banks which are showing no signs of letting up.
The Italian bank confirmed less than an hour before the results that it had finalised a plan to sell off its entire portfolio of non-performing loans and had assembled a consortium of banks to back a €5 billion (RM22.5 billion) capital increase.
The Royal Bank of Scotland has suffered the biggest blow to its financial strength of any United Kingdom bank in Europe-wide checks. In order for a bank to be considered well capitalized, they must have at least a 6 percent CET1. On the eve of the stress test, Monte dei Paschi’s board confirmed that it had rival proposals to save the world’s oldest bank. Nonetheless, the EBA’s chair Andrea Enria said the test showed “the benefits of capital strengthening done so far are reflected in the resilience of the European Union banking sector to a severe shock”.
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Spain’s Banco Popular, Bank of Ireland and Austria’s Raiffeisen all ended the test below this level at 6.62%, 6.15%, and 6.12%, respectively.
“This stress test is a vital tool to assist supervisors in accelerating the process of fix of banks’ balance sheets, which is so important for restoring lending to households and businesses”, he added. Its exercise tested 51 European banks and covered approximately 70% of all banking assets in the EU.
He said: “We are confident that in delivering our strategy, we will transform RBS into a low-risk, resilient bank”. Italian, Irish and Spanish banks put in the worst performances of the 51 firms tested. RBS takes a seven-percentage-point hit and its capital ratio falls to 8 per cent.
The results for the four banks are consistent with those of previous Bank of England 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”. RBS’s modelled leverage ratio under the adverse scenario was 3.6% on a fully loaded Basel 3 basis and 4.2% under the PRA transitional definition for leverage ratio as at 31 December 2018.
“It had the third biggest impact on its capital, but it is still well above the minimum capital that would be required”.
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After opening higher, the Stoxx Europe 600 Bank index swung to a loss of 0.4%.
