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German and British banks have revealed their vulnerability to a potential economic crisis after tests unveiled Friday by the European Banking Authority (EBA), which however boasts a better overall resistance of the European banking sector.
This exercise, the fourth of its kind orchestrated by the EBA (English EBA), confronted 48 banks in the European Union (EU) and Norway to a pessimistic scenario combining recession, jump in the unemployment rate, fall in property prices, all coupled with economic risks related to Brexit.
At the end of the test, "the efforts made by banks to strengthen their capital base in recent years have strengthened their ability to withstand significant shocks," said Mario Quagliariello, director of economic badysis and statistics of the ABE.
The same goes for the European Central Bank, which in the wake of the conclusions released by the EBA, said in a statement that the 33 banks it directly supervises are "now more resistant to financial shocks".
However, the general level of "resilience" reached by euro area banks should not hide "difficulties" and "work to be done" to improve their business model and manage the ballast of the past, notes the ECB, alluding stocks of doubtful debts which are still around 650 billion euros in the region.
The surprise came from the German and British banks whose hard equity ratio (CET1), which corresponds to the contributions of the shareholders and profits set aside in relation to the credits granted, fell after being battered by these difficult economic badumptions.
Deutsche Bank and Barclays, European dunces?
Among the bad students come from large systemic banks like Deutsche Bank, weakened by the financial crisis of 2008 and in loss for three consecutive years, and the British Barclays.
According to the imagined catastrophe scenario, they would see their hard equity ratio fall to 8.14% for Deutsche Bank and 6.37% for Barclays in 2020, ie below the minimum of 7% required by the standards. international banks for an institution of its importance.
"Our risk profile is solid," Deutsche Bank Chief Financial Officer James von Moltke said in a statement, adding that the supervisor had artificially worsened the bank's results on the badumption that the extraordinary losses of the past would be repeated every year and without taking into account strategic decisions made by management.
In addition, Barclays and Deutsche are part of a group of 25 banks that, in the worst case scenario, would be required by regulators to stop paying dividends to strengthen their capital. Also participating in this group are British HSBC, German Commerzbank, Spanish Santander, French BNP Paribas, Societe Generale, as well as ING (Netherlands) and Unicredit (Italy).
In Germany, the country's important regional banks, such as Landesbank Hessen-Thüringen, Bayerische Landesbank and Norddeutsche Landesbank, would also find their resilience seriously undermined.
In the UK, the UK's Lloyds Banking Group, RBS and even HSBC would also lose a significant portion of their capital.
"Weaker banks tend to have lower profitability, so little extra income to cover their losses, many poorer banks have low profits, and profitability remains the biggest challenge for European banks," said an industry expert. wishing to remain anonymous, requested by AFP.
If at the end of these tests, there are no losing or winning banks per se, these results are a valuable badet for supervisors to calibrate their regulatory requirements.
The ECB wants to integrate the results of these tests into its ongoing bank valuation campaign, which is scheduled for January 2019.
In 2016, during the last edition of the stress tests, the Italian bank Banca Monte dei Paschi di Siena (BMPS) was the red lantern of the European banks, with hard capital falling into negative territory, plunging the Italian banking sector into tormented. Six months later, the establishment was recapitalised by the Italian State.
This time, the Italian banks, object of all worries while the populist government has engaged a budget struggle with Brussels, have rather well out.
The Italian Minister of Economy, Giovanni Tria, "took note with satisfaction of the result of the stress tests (…) on the state of health of the Italian banking system".
(With AFP)
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