The UK’s seven biggest banks which participated in the Bank of England (B0E)’s stress tests not only passed them, but were graded for their resilience to a range of adverse shocks These include: a strong slowdown in growth in China, sharp falls in oil and raw material prices; weakness and deflation in the Eurozone lasting three years; and a substantial increase in volatility and credit premiums, combined with serious liquidity problems.
Although two of the banks, Royal Bank of Scotland and Standard Chartered, passed the tests thanks to an improvement in their resilience during 2015 and their plans to hike capital, the remaining five showed particular strength. Santander’s performance in the tests stood out, demonstrating that it is one of the lenders which is in best shape.
The BoE said the results of the stress tests show the UK banking system’s strong resilience and that its recapitalisation is more or less complete, despite the restructuring challenges which various banks still have to face. As of September 2015, the aggregate Tier 1 capital ratio of the banks stood at 13%, half a percentage point lower than what the B0E considers as an appropriate level.
The resilience tests carried out by the B0E – and the eurozone banks will soon participate in a similar process – focused particularly on the situation of the UK lenders with respect to the emerging economies, the weaknesses in the market, the current account deficit, the property market and cyber attacks.
And the results demonstrated that the UK banks are extremely resilient.
