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Stress tests on European Banks: Details and Results


Friday, the 29th of July, at 22.00 it was announced the results of stress tests on European banks wanted by the ECB. In the focus there were especially Italian banks which appeared to be the worst in Europe, but the results have refuted this theory.

Now let’s see what the stress test is, by who is done and what were the banks under investigation.

Stress tests are a sort of “report card” on the health of the Old Continent credit institutes. The goal of European Regulatory is to understand how the capital of a bank changes based on two scenarios: one ‘normal’ and another ‘under aversion’ (i.e. characterized by a particularly unfavorable financial situation).

There are two kinds of stress tests: main and simplified. Unlike previous stress test, this time it is not required a minimum threshold of capital ratio (CET1 ratio: the parameter that measures the balance of bank solidity).

The results of the stress tests provide important information to the ECB and flow to the Srep (Supervisory Review and Evaluation Process), the process of supervisory and evaluation of liquidity, capital and bank governance: this analysis will be implemented between the third and fourth quarter of 2016.

The adverse scenario imagines a contraction of 1.2% of the European Union’s gross domestic product in 2016, 1.3% in 2017 and 0.7% growth in 2018, as well as a collapse of the property prices and a haircut on government securities.

The stress tests are made on the largest banks of the EU and it is conducted by the EBA, the European Banking Authority, based in London and chaired by the Italian Andrea Enria which has the task of ensuring the transparency and functioning of financial markets.

Under the magnifying glass of the EBA there are no less than 53 credit institutions domiciled in the European Union: of these, 39 belong to the Eurozone.

Here is the detailed list of banks under test:

– AUSTRIA: Erste Group Bank AG, Raiffeisen‐Landesbanken‐Holding GmbH

– BELGIUM: KBC Group NV, Belfius Banque SA

– GERMANY: Deutsche Bank AG, Commerzbank AG, DZ Bank AG Deutsche Zentral‐Genossenschaftsbank, Landesbank Baden‐Württemberg, Bayerische Landesbank, Norddeutsche Landesbank Girozentrale, Landesbank Hessen‐Thüringen Girozentrale, NRW.BANK, Volkswagen Financial Services AG, DekaBank Deutsche Girozentrale

-DENMARK: Danske Bank, Nykredit Realkredit, Jyske Bank

-SPAIN: Banco Santander S.A., Banco Bilbao Vizcaya Argentaria S.A., Criteria Caixa Holding, BFA Tenedora de Acciones S.A, Banco Popular Español S.A., Banco de Sabadell S.A.

-FINLAND: OP‐Pohjola osk

-FRANCE: BNP Paribas, Crédit Agricole Group, Société Générale, BPCE, Confédération Nationale du Crédit Mutuel, La Banque Postale, GR National Bank of Greece S.A.9, HU OTP Bank Nyrt.

-GREECE: National Bank of Greece S.A.

-HUNGARY: OTP Bank Nyrt.

-IRELAND: The Governor and Company of the Bank of Ireland, Allied Irish Banks plc

-ITALY: Unicredit SpA, Intesa Sanpaolo SpA, Banca Monte dei Paschi di Siena SpA, Banco Popolare ‐ Società Cooperativa, Unione di Banche Italiane Società Cooperativa per Azioni

-NETHERLANDS: ING Groep N.V., Coöperatieve Centrale Raiffeisen‐Boerenleenbank B.A. (RABO), ABN AMRO Group N.V., N.V. Bank Nederlandse Gemeenten

-NORWAY: DNB Bank Group

-POLAND: Powszechna Kasa Oszczednosci Bank Polski SA

-SWEDEN: Nordea Bank ‐ group, Svenska Handelsbanken ‐ group, Skandinaviska Enskilda Banken ‐ group, Swedbank ‐ group

-UNITED KINGDOM: HSBC Holdings Plc, Barclays Plc, The Royal Bank of Scotland Group Public Limited Company, Lloyds Banking Group Plc

The worst bank in Europe respecting the expectations was ‘Banca MPS’ (Italy) falling below the 5.5% threshold of CET1 in adverse conditions, highlighting a delta of 1451 bps from a Fully Loaded CET1 to 12.07% coming down to -2.4% in the worst scenario. Just above this threshold the Austrian ‘Raiffeisen’, the Spanish ‘Banco Popular’ and the Irish ‘Allied Irish Banks’ and ‘Governor and Company of the Bank of Ireland’.

Italian banks, excluding MPS, performed better than in other European sectors. The two big German Deutsche Bank and Commerzbank showed a Fully Loaded CET1 in adverse conditions slightly over 7%.

Overall we believe that stress tests have confirmed the expectations with ‘Banca MPS’ the only real failure and with Irish and Austrian banks, in trouble. Transparency gave by the stress tests have helped in trading CFDs on European indices to a slight rise, an important signal for the opening of the Stock Exchange for the next week.

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