EBA-ECB stress test, the results are out.
Positive results, given that European banks in general have passed the test, launched and coordinated by the EBA, the European Banking Authority, in collaboration with the European Central Bank (ECB) and the European Systemic Risk Board (ESRB).
The EBA stress tests involved 70 banks from 16 European countries, or 75% of the assets of the EU banking sector.
As stated on the EBA website, “these stress tests allow supervisory authorities to assess the resilience of EU banks within a three-year horizon, based on both a baseline and an adverse scenario.
The adverse scenario, or even the worst case scenario contemplated by the EBA is, we read, “characterized by severe negative shocks to economic growtha higher unemployment rate combined with higher interest rates and credit spreads.
Regarding the decline in GDP, the European Banking Authority specified, the adverse scenario of 2023 is the one that predicted the worst shock of all the stress tests conducted so far.
The ECB had announced, at the end of January 2023, that it would stress-tested a total of 99 directly supervised banks.
Based on what emerges from the press release, the ECB examined “57 of the largest banks in the euro area, selected to cover around 75% of euro area banking assets, as part of the 2023 EU-wide stress test coordinated by theEuropean Banking Authority (EBA)”. The ECB had specified that it would also launch “its own stress test on 42 other medium-sized banks not included in the EBA (EBA) sample, because they are smaller”.
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European banks pass EBA-ECB test
The good news is that European banks have passed the test. From the results disclosed by the EBA, it emerged that “the European banks would remain “resilient” even if the adverse scenario were to materialize and the European Union and the whole world suffered a severe recession.
“The resilience of EU banks – we read – partly reflects the solid capital position presented at the beginning of the year, with a fully-loaded CET1 ratio equal to 15%, which allows banks to cope with the capital erosion expected in the adverse scenario”.
An erosion that, in the case of the worst case scenario, it would be equal to 459 basis pointsand which would lead the parameter of the CET 1 ratio to drop to 10,4%.
“Highest earnings and best asset quality seen as of early 2023 would make capital erosion more moderate in the event of an adverse scenario“.
Which means – specifies the EBA – that, “despite combined losses for a value of 496 billion euros, the banks of the European Union would remain sufficiently capitalized, such as to be able to continue to support the economy even in times of severe stress”.
That said, given “the high level of macroeconomic uncertainty”, the EBA underlines “the importance of remaining vigilant”which means that “both supervisors and banks should prepare for a possible worsening of economic conditions”.
Stress test: Italian banks beat French and German banks
That said, how did they pass the EBA stress tests the Italian banks?
The answer is good, to the point that, in the event that the adverse scenario envisaged by the EBA were to occur, Italian banks would also do better than the banks of France and Germany, with capital that would settle, on average, at 11 .6%, compared to between 9% and 10% for French and German banks.
It has to be said that Italy would therefore beat France and Germany also in this sectorafter beating them as GDP growth in 2023.
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The litmus test comes from the press releases that were issued by the same Italian banks examined in the EBA stress tests after the dissemination of the results released by the European Banking Authority:
UniCredit well positioned against potential macroeconomic shocks
UniCredit, the bank led by CEO Andrea Orcel, which this week announced accounts that highlighted the
best first half ever, announced that, “despite the more severe stress scenario applied this year, the reduction in the level of capital” was confirmed, in the case of the worst case scenario, “significantly less than in the 2021 stress test results, thanks to a much more robust starting point based on a significant improvement in capital generation, solid asset quality and prudent overlays”.
Piazza Gae Aulenti therefore underlined that “all of this poses UniCredit in a good position with respect to potential macroeconomic shocks”.
In the case of a baseline scenario, UniCredit would present in 2025 a fully loaded CET1r at 19.97%, 397 basis points higher at the fully loaded CET1r at the end of December 2022, and in 2025 a CET1r transitional at 19.97%, 329bps higher than the CET1r transitional at the end of December 2022. In case of an adverse scenario, instead, in 2025 the fully loaded CET1r of UniCredit it would be 12.51%, 349bps less than the fully loaded CET1r at the end of December 2022 and the CET1r transitional would come in at 12.51%, 417bps less than the CET1r transitional at the end of December 2022.
“The arrival point of UniCredit’s capital level in 2025 is the highest of comparable banks, thanks to its robust capitalization”, underlined the Italian bank, recalling that in the second quarter of 2023 the fully loaded CET1r stood at 16 .64% and CET1r transitional at 16.94%”.
The bank led by CEO Andrea Orcel also noted that “this year, for the first time, the EBA has published further information on bond holdings held at amortized cost”.
“These data – he explained – do not include the impact of portfolio-level financial hedges, equal for UniCredit to 1.8 billion euros in December 2022 and 1.9 billion euros in February 2023″.
“Considering these coverages, the differences between the carrying amount and the fair value are equal to 1.5, respectively
billion euros and 1.2 billion euros, significantly lower than disclosed by the EBA, thus confirming our prudent approach to hedging the interest rate risk linked to the investment portfolio”.
Intesa SanPaolo confirms solidity even in complex scenarios
Intesa SanPaolo, the Italian bank led by CEO Carlo Messina, also announced the results of the stress tests, announcing that:
Iil “equity ratio Common Equity Tier 1 ratio (CET1 ratio) fully loaded resulting from the stress test” is equal to, in the case of the base scenario al 14.02% in 2023, 14.47% in 2024, 14.85% in 2025.
In the adverse scenario, for the years 2023, 2024, 2025, the parameter drops to 10.36% 10.78% 10.85% respectively compared to the starting figure, recorded as at 31 December 2022, equal to 13.53%.
“The results of the stress test highlight Intesa Sanpaolo’s ability to confirm its solidity even in complex scenarios, thanks to the well-diversified and resilient business model”, reads the press release from the bank managed by the Messina CEO.
Banco BPM numbers
Banco BPM announced that, in the baseline scenario, the fully loaded CET 1 ratio is equal to 14.6% in 202316.5% al 2024 e 17.4% al 2025).
In the adverse scenario the fully loaded CET 1 ratio would be 8.5% in 2023, to 8.7% in 2024 and 9% in 2025.
“Both results largely comply with the minimum regulatory requirements in both the Baseline and Adverse scenarios,” reads the statement from the Italian bank led by CEO Giuseppe Castagna.
Banco BPM pointed out that the bank, “even in a particularly worsening Adverse scenario compared to the scenario adopted in the 2021 stress test exercise, achieved better results over a homogeneous time horizon” and recalled that, “in particular, in the previous year the Adverse scenario led to a fully loaded CET1 ratio post impacts of 7.0% at the end of 3 years (9.0% at the end of 3 years in 2023, in growth of 2 percentage points).
Mps-Monte dei Paschi di Siena: best stress test results ever
Here’s what would happen instead to Mps-Monte dei Paschi di Siena. The results were disclosed by the Sienese bank itself, which is particularly attentive to the market due to the repeated crises that have seen it as a protagonist. The bank led by CEO Luigi Lovaglio, controlled by the Treasury, majority shareholder with a share of the capital of approximately 64%, remains under special observation:
The Common Equity Tier 1 ratio (CET1%) fully loaded at 2025 resulting from the stress test (in brackets the change compared to the figure of 15.64% as at 31 December 2022) is equal, in the case of the baseline scenario, to 18.61% (+297bps), which rises to 19.83% (+419bps) factoring the effect of the reduction in personnel costs indicated above. In the adverse scenario, the Mps parameter is equal to 10.13% (-551bps), which rises to 11.98% (-366bps) factoring the effect of the reduction in personnel costs indicated above. +2pp).
“The results – reads the Sienese bank’s press release – as indicated in the note by the EBA, do not consider, due to methodological constraints, the benefits in terms of higher profits and capital generation of the reduction in personnel costs for 857 million euro in period 2023-2025, deriving from the exit on 1 December 2022 of over 4,000 people”.
Mps Monte dei Paschi di Siena can boast best results ever in Stress Test exercises.
The outcome of the stress tests confirms the fact “the strong solidity achieved by the Group and its ability to generate sustainable profitability highlighted by positive net results in the years 2024 and 2025, even in the adverse scenario, factoring in the reduction in personnel costs”.
The bank specifies that “the results of the simulation exercise do not constitute forecasts either on the future financial performance or on the expected capital ratios of the Montepaschi Group”.
Also remarked that “the 2023 European stress test does not provide for minimum thresholds to be respected: it is designed to be used for the purpose of supervisory review and evaluation process (SREP)”
Bper’s results: capital solidity confirmed
Bper highlighted that the results of the stress tests confirmed its “capital solidity”, recalling the starting figure recorded as at 31 December 2022 equal to 12.04% in terms of fully loaded CET 1 ratio:
In the base scenario, 2025 fully loaded CET1 ratio is 16.00%, 396bps higher compared to the data recorded in
December 31, 2022. In the adverse scenario, fully loaded CET1 ratio in 2025 is 7.89%, 415bps lower compared to the figure recorded as at 31 December 2022.
Bper specifies that “these results are not comparable with those of the corresponding year carried out in 2021 from which BPER was previously excluded in light of the impacts deriving from the project to acquire the business branch from Intesa Sanpaolo Group”.
Furthermore, the bank highlighted that “a part of the results obtained through the de-risking process occurred during the first half of 2023 could not be taken into account in the context of the financial year as it relates to events not fully finalized as at 31 December 2022 (reference date of the financial year)”.