UK banks Barclays and Lloyds shocked by EU health check

LONDON (Reuters) – Britain's Barclays (BARC.L) and Lloyds (LLOY.L) were the latecomers of a European Union stress test alongside the Italian Banco BPM lender (BAMI.MI), which was more difficult to report on.

EU banking policeman released Friday the results of 48 banks for its most severe test since 2009, the year in which it began the exercise to identify capital shortages and avoid repetition of operations bailouts triggered by the 2008 financial crisis.

Even if there is no success or failure, the banks have not completed the most unfavorable or difficult part of the test of the European Banking Authority (EBA) without preserving a capital adequacy ratio. more than 5.5% when all new and planned capital rules are applied. have to raise more capital or sell risky assets.

None of the people tested fell below 5.5%, but Barclays earned 6.37%, Banco BPM 6.67% and Lloyds 6.8%, while the UBI in Italy 7.46%.

British banks' capital was particularly hard hit during the test because of their exposure to credit other than secured loans such as mortgages, the EBA said in a statement.

British banks aim to boost yields, while the lowest interest rates and the fiercest competition from the most prominent rivals fueled the explosion in consumer lending. The Bank of England has repeatedly urged banks to take a more cautious approach to these loans.

The Bank of England, which will release its own stress test results next month, said Friday that UK banks have shown that they can absorb the effect of the worst-case stress scenario from the EBA in their markets. own funds reserves.

The EBA has stated that the unfavorable scenario undermines the core capital ratio of the 48 banks tested by 395 basis points when all new and planned capital rules are applied, which is higher than the previous 2016 test in due to credit losses.

"The result (…) shows that banks' efforts to strengthen their equity in recent years have helped to strengthen their resilience and ability to cope with the severe shocks and material impacts of the 2018 financial year. about capital, "said Mario Quagliariello, director of economic analysis. at the EBA, said.

Supervisors will use the test results to determine the capital banks should hold or what assets should be sold.

The latest EBA test gauged the ability of banks to withstand theoretical market shocks, such as rising political uncertainty amid falling economic growth, a messy Brexit or a massive selloff of bonds and real estate .

European banks are lagging behind their US counterparts in terms of profitability, loan quality and cost discipline, and the region's banking index, the SX7P, has lost more than 20% this year.

(For a chart on "Banks of the EU under pressure", click on tmsnrt.rs/2P5OjKI)

Thirty-three of the banks tested are in the euro area, with the main supervisory authority being the European Central Bank (ECB), which tests 60 other smaller banks separately. Some of them are struggling, but their results will not be published.