BoE eases capital requirements for UK banks after latest stress test

Tue, 02nd Dec 2025 09:11

(Alliance News) - The Bank of England on Tuesday lowered its estimate of how much capital UK banks require after the country's seven largest lenders passed its latest stress test.

The tests, introduced in the wake of the 2008 global financial crisis, examine how banks perform in a severe recession scenario where economic growth plummets and unemployment rises sharply, along with other associated economic impacts.

All seven of the banks tested passed. These were Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC, Nationwide Building Society, NatWest Group PLC, Banco Santander SA's UK arm and Standard Chartered PLC.

The BoE found that the banking system could continue to support the UK economy even if economic and financial conditions turned out materially worse than expected.

"The UK banking system is well capitalised, maintains robust liquidity and funding positions, and asset quality remains strong", the report stated.

At its low point, the BoE estimated capital remains around GBP60 billion above the sum of aggregate minima and systemic buffers, indicating that the UK banking system would be resilient to the severe but plausible scenario and would have the capacity to continue lending to credit worthy households and businesses throughout the stress.

In addition, the BoE noted no individual bank would fall below its CET1 capital or Tier 1 leverage ratio minima.

UK-focused banks Lloyds, Nationwide, NatWest and Santander UK were most affected by the UK macroeconomic stress, driven by higher interest rates, inflation, unemployment and house price falls.

Internationally-diversified banks Barclays, HSBC and Standard Chartered faced additional pressures from global downturns and traded risk shocks in markets such as Hong Kong, China, the US and Europe, the central bank said.

As a result of the test, the BoE lowered the "appropriate benchmark" for Tier 1 capital requirements to around 13% of risk weighted asses, equivalent to a CET1 ratio of around 11%, 1 percentage point lower than its previous benchmark of around 14%.

"Given the reduction in the [Financial Policy Committee's] benchmark, banks should have greater certainty and confidence in using their capital resources to lend to UK households and businesses," the BoE said in its report.

The report said that risks to financial stability have increased during 2025 and that many "risky asset valuations remain materially stretched", particularly for technology companies focused on artificial intelligence.

"Equity valuations in the US are close to the most stretched they have been since the dot-com bubble, and in the UK since the global financial crisis. This heightens the risk of a sharp correction," the report stated.

Under the stress test, Barclays CET1 ratio fell to 9.3% after the impact of management actions, and its leverage ratio to 4.2%, compared to 7.2% and 3.25% minimum requirements.

Barclays said the results reflect its "robust and resilient balance sheet position."

HSBC's CET1 ratio fell to 11.9% after the impact of management actions, and its leverage ratio to 5.1%, compared to 5.8% and 3.25% minimum requirements.

Lloyds' CET1 ratio fell to 10.9% after the impact of management actions, and its leverage ratio to 4.6%, compared to 5.9% and 3.25% minimum requirements.

Lloyds said it is "pleased" to have "comfortably passed" the stress test, noting it is not required to take any capital actions.

Nationwide's CET1 ratio fell to 14.5% after the impact of management actions, and its leverage ratio to 4.8%, compared to 6.5% and 3.25% minimum requirements.

NatWest's CET1 ratio fell to 11.1% after the impact of management actions, and its leverage ratio to 4.7%, compared to 6.0% and 3.25% minimum requirements.

NatWest Chief Financial Officer Katie Murray said: "This exercise has highlighted again the strength of NatWest Group's balance sheet, delivering sustainable value creation and strong distributions for shareholders."

Santander UK's CET1 ratio fell to 10.3% after the impact of management actions, and its leverage ratio to 3.9%, compared to 6.9% and 3.25% minimum requirements.

Standard Chartered's CET1 ratio fell to 9.8% after the impact of management actions, and its leverage ratio to 4.6%, compared to 6.1% and 3.25% minimum requirements.

Standard Chartered said the results "demonstrate the group's continued capital strength and resilience to stress".

In response early Tuesday in London, shares in HSBC rose 0.7% to 1,087.00 pence. Standard Chartered traded up 0.6% at 1,691.00p, Barclays up 0.9% at 433.30p, Lloyds up 1.1% to 96.50p, and NatWest up 0.3% to 633.40p. In Madrid, Santander was up 2.4% at EUR827.22.

By Jeremy Cutler, Alliance News reporter

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