1st December 2015
Royal Bank of Scotland and Standard Chartered have been highlighted as the weakest in a stress-test of Britain’s largest lenders.
It is the second year the Bank of England has carried out the tests, but this time no bank was required to come up with a new capital plan.
The Bank tested the lenders against a scenario in which the global economy founders and oil falls to $38 a barrel and the, but none were required bank to come up with a new capital plan.
Out of the seven banks tested, RBS and Standard Chartered were found not to have enough capital strength, but both took steps to raise capital, so were not told to come up with a new plan.
Commenting on the results, RBS chief financial officer Ewen Stevenson said: “We are pleased with the progress we have made relative to the 2014 stress test, but recognise we still have much to do to restore RBS to be a strong and resilient bank for our customers.”
Standard Chartered’s chief executive Bill Winters says: “The results of the test demonstrate our resilience to a marked slowdown across the key markets in which we operate.
“The test was conducted on our balance sheet as at the end of 2014. Since then we have made further significant progress in strengthening our capital position.
“We are operating at capital levels above current minimum regulatory requirements and have a number of additional levers at our disposal to further manage capital.
Russ Mould, investment director at AJ Bell, says: “Although all banks passed the stress test, and their share prices are responding favourably, they continue to face strong headwinds.
“The Financial Policy Committee will in time require the big banks to set aside further capital so they comply with the new countercyclical capital buffer, while competition from the challenger banks will not go away.
“Analyst consensus for 2016 has earnings for the big five banks at near 2007 pre-crisis levels (see chart) but you have to wonder if this is realistic, given how robust the economy and markets were back then and the misconduct fines associated with some of those past peak profits.
“Banks remain highly complex, tightly-regulated firms operating in fairly mature markets and most are still in retrenchment mode, with cost-cutting rather than top-line growth driving earnings. Ultimately you cut bone not flesh and underinvestment in IT and services will further play into the hands of the challenger banks.
“While the big seven banks will collectively sigh with relief today, they will remain under the microscope for some time to come.”