UK Banks Pass Stress Tests

LONDON - (Alliance News) - Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC, the UK lenders subject to European stress tests, have passed, according to results published by the European Banking Authority on Sunday.

Of the lenders, Lloyds, which is 25% owned by the UK government, had the narrowest pass, showing a common equity tier 1 ratio of 6.2% in the outcome of the adverse scenario as of December 31, 2016, ahead of the 5.5% minimum threshold.

Under the scenario, RBS, another bank to have received a bailout during the financial crisis, would hold a ratio of 6.7% under the scenario. While the UK government has already begun to sell down its stake in Lloyds, it still retains 80% of RBS and has not yet been able to begin to sell shares in the lender.

Barclays passed with a ratio of 7.1%, while HSBC boasted the strongest ratio of the lenders, at 9.3%.

The EBA's stress tests, which incorporated 123 banks across the EU, is designed to assess the resilience of lenders to challenging economic conditions, as a measure of whether banks could cope with another financial crisis.

Over the three-year period of the exercise, 24 banks would fall below the 5.5% threshold and the overall shortfall would total EUR 24.6 billion, according to the EBA, which also said the main drivers of the miss were credit risk losses and an increase in total risk exposure.

Between January and September 2014, the EBA said, EU banks raised EUR53.6 billion of equity, or EUR39.2 billion net of repayments and buybacks, and EUR39.1 billion of contingent convertible instruments both additional Tier 1 and Tier 2 in preparing for the stress tests.

The additional capital raised in 2014 by banks with a shortfall reduces the capital needs for those banks to EUR9.5 billion and the number of banks with a shortfall to 14, the EBA said.

The UK's eight major lenders now await the results of the Bank of England's own check-up. Results of the UK test are due on December 16.

"It is important to note that the EBA results should not be interpreted as indicative of the UK results, nor can the results of the UK stress test be inferred from the EBA result," the Bank of England said in a statement.

By Samuel Agini; samagini@alliancenews.com; @samuelagini

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