German and UK bank struggle in EU stress test
In the EU «health check-up» of the banking system, German and UK banks came out as the dunces. Norway’s largest bank, DNB, was also a part of the stress test and is pleased with the outcome.
The European Central Bank (ESB) and the European Banking Authority (EBA) have considered how 48 banks in 15 EU countries and the EEC (including Norway) would cope with a crisis scenario. The scenario is about an imagined economic crisis from 2018 to 2020.
The outcome for DNB showed a loss on loans, concentrated in 2018, which would lead to a loss of NOK 9.1 billion (€ 1 billion) after taxes. For 2019 and 2020, positive results would have been achieved regardless.
– EBA’s stress test shows a robust capital position for the bank, it is stated in a stock exchange announcement from Den Norske Bank (DNB).
British Lloyds, Barclays and Royal Bank of Scotland, as well as Deutsche Bank and some German regional banks, came out the worst.
All in all, EBA concludes that the European banks are in better condition as a result of rules introduced after the financial crisis in 2008.
The test round is the toughest that the EU banking authority has conducted so far.
The scenario includes a Britain leaving the EU without a Brexit agreement, dramatic contraction of the economy and drop in the housing market. Concerns about the budget situation in Italy contribute to making the test realistic as well.
The Euro Zone
37 banks from the eurozone have participated in the stress test. These account for approximately 70 per cent of all funds in the financial sector in the euro zone.
In such a stress test, financial institutions do not get a formal pass or fail grade. However, banks that fail to meet the requirements of the test risk having to increase their capital holdings or to get rid of risky placements.
The stress test system was introduced in 2009.
© NTB scanpix / #Norway Today