European Banks Emerge Healthier In EBA 2018 Stress Test
Zacks Investment Research | Nov 04, 2018 08:46PM ET
After almost seven years since the eurozone debt crisis, European banks have regained footing. This is per the outcome of the stress test conducted by the European Banking Authority (“EBA”) based on 2017-end data.
All 48 banks(that were part of the stress test)were able to meet the minimum common equity (CET1) ratio level of 5.5%, which was the yardstick used in earlier exercises. This year’s test did not provide pass/fail grades.
On an average, these banks’ (accounting for nearly 70% of the EU banking sector by assets) CET1 ratio, under adverse macroeconomic scenario, fell from 14.5% as of Dec 31, 2017 to 10.3% by the end of 2020. This is an improvement from CET1 ratio of 9.4% that was recorded when the last stress test of 51 banks under a different scenario was conducted in 2016.
DanièleNouy, chairman of the ECB’s supervisory board said, “The outcome confirms that participating banks are more resilient to macroeconomic shocks than two years ago. Banks have built up considerably more capital, while also reducing non-performing loans, and improved their internal controls and risk governance.”
Unexpected Weak Results From U.K.-based Banks
As mentioned above, none of the banks’ CET1 ratio was below 5.5%, but two major U.K.-based banks — Barclays (NYSE:BCS) and Lloyds Banking Group (LON:LLOY) plc (NYSE:LYG) — were surprisingly among the worst three performers. Barclays ended up with CET1 ratio of 6.37%, while Lloyds was a tad higher at 6.8%. Notably, Italian bank, Banco BPM S.p.A. with CET1 ratio of 6.67% was the third lender with less than 7% ratio.
This reflected the susceptibility of the U.K. banks to weak growth, credit losses and Brexit-related uncertainty.
What’s more surprising is the fact that German and Italian lenders including Deutsche Bank (NYSE:DB) , Commerzbank AG (DE:CBKG), UniCredit S.p.A. Zacks Investment Research
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