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UK lenders pass Bank of England stress test

Staff Writer |
While Royal Bank of Scotland (RBS) and Barclays struggled to cope with them, the Bank of England's stress tests showed that the largest UK lenders were able to withstand an economic scenario "more severe than the global financial crisis".

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However, RBS said it will continue to show "weaker" than target stress test results until it resolves "major legacy conduct issues".

Banks have continued to build their capital strength during 2017, the Bank of England said, and the Prudential Regulation Committee as a result has judged that all seven participating banks now have sufficient capital to meet the standard set by the test.

The BoE added: "The PRC judged that RBS did not meet its CET1 [Common Equity Tier 1] ratio systemic reference point in this scenario."

However, the PRC has not asked RBS to submit a revised capital plan in light of the steps that the UK state-controlled bank has taken to strengthen its capital position.

RBS, one of the seven participating banks in the stress tests, said in a separate statement that stress test results will be weaker than its long-term targets until the it resolves its legacy conduct issues.

"We continue to make progress towards the stress resilient bank we aspire to be. 2017 represented another year of material improvement with our peak-to-trough stress resilience improving by 300bps from last year's stress test. Until we have resolved our remaining major legacy conduct issues and non-core portfolio interests, we will continue to show stress test results weaker than our long-term targets," said RBS Chief Financial Officer Ewen Stevenson

RBS, which is 70% owned by the taxpayer, said it has taken a number of actions to improve its capital position including run-down of risk-weighted assets, reduction in certain credit portfolios and resolution of various litigation cases and regulatory investigations.

The stress tests, which are designed to measure resilience of participating banking in an adverse economic scenario, also revealed that Barclays failed to meet its capital ratio targets but wasn't required to submit a revised capital plan.

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