Most EU banks pass stress tests
(29 July 2016 – Europe) Most European banks have been given a clean bill of health by regulators following “stress tests” on their systems on Friday.
Despite Europe’s sluggish growth and low interest rates, only a handful of lenders struggled to ride out the hypothetical severe economic downturn.
The European Banking Authority released results on Friday of its latest stress test showing how much capital, or cushion against losses, banks would have left on their balance sheets in an adverse economic scenario. The tests come after European banks climbed out of the 2010 eurozone crisis but have continued to grapple with low profits, bad loans and, sometimes, management problems and turnover, all of which have translated into struggling stock prices.
Of the 51 banks assessed, Italian lender Banca Monte dei Paschi di Siena scored the lowest. Other major banks that suffered sizeable hits to their capital buffers included UniCredit, Barclays and Deutsche Bank.
According to the European Central Bank, these the scenarios used in this stress test were not as severe as those used by the US regulator in June, in which 31 out of 33 US lenders, including big firms such as Bank of America and Citigroup, passed.
In addition, the European tests did not include struggling Greek and Portuguese banks this year. However they are being privately tested, but outcomes won’t be publically available.
In addition, the banking authority’s toughest economic scenario didn’t factor in negative rates or the effects of a Brexit. Regulators said the scenarios tested were gloomier than most of the predicted impact from the Brexit vote.
Of the “systemically important” European banks, Italy’s UniCredit fared the worst, with a capital ratio of 7.1 percent, while British bank Barclays had a capital ratio of 7.3 per cent.
Deutsche Bank had a 7.8 percent capital level. The results indicated that Germany’s largest lender must continue to cut costs and reduce risky assets to boost its buffer against losses.
Deutsche Bank chief executive John Cryan said the test showed the bank was “well equipped for tough times” and on track to reach capital goals.
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