The European Central Bank (ECB) has released the results of its stress tests, which covered 51 medium and small European banks, including Novo Banco, the Frankfurt institution said in a statement.
According to the institution, which released the results on the same day that the European Banking Authority (EBA) also released its stress test results, the final Core Tier 1 (CET1) ratio for 89 banks was in an unfavorable scenario over three years. will amount to 9.9%, which is 5.2 percentage points below the starting point of 15.1%.
The data includes 38 banks from the EBA sample and, for the first time, 51 more medium and small institutions controlled by the ECB, including Novo Banco.
According to the data released by the institution, the bank, headed by Antonio Ramalho, in an unfavorable scenario could lose 600 to 899 basis points and reach a “fully loaded” CET1, that is, taking into account future capital requirements below 8%. …
According to the ECB, in the general stress tests, the main factors for deteriorating capital adequacy ratios will be credit risks, market risk and the ability to generate returns.
The ECB believes that “banks are in better shape earlier this year than they were three years ago,” but warned of an increase in deterioration in “system-wide” ratios as the scenario used was worse than the scenario used. in tests of 2018.
The ECB also showed that in the case of a sample of 38 banks also tested by the EBA, the average CET1 ratio fell by five percentage points from 14.7% to 9.7%.
For 51 small institutions, the decline was 6.8 percentage points, down 11.3%, from a starting point of 18.1%.
According to the ECB, the main reason for these differences in the unfavorable scenario is that midsize banks are more affected by low interest rates, reduced fees and lower market profitability over the three-year horizon.
“Despite the widespread resilience of the banking system, new challenges have emerged with the COVID-19 pandemic and banks need to make sure they properly assess and manage credit risk,” the ECB said.
