RBS performs poorly in stress tests

Getty Image

RBS Group performed poorly in the latest European stress tests, which assess how the banks might perform in adverse economic conditions.

Under the adverse conditions, RBS's capital levels fell by 7.5% - the third biggest fall of the 51 banks tested.

However, RBS said the tests showed its "continued progress" in improving its balance sheet.

RBS was bailed out by the government in 2008 and the UK taxpayer continues to hold a 73% stake in the bank.

The health check of 51 lenders in the European Union was carried out by the London-based European Banking Authority and assessed how much capital banks would use up in adverse conditions, including an economic downturn.

Under the test conditions, RBS was left with a capital buffer of just over 8%.

"The EBA stress test results demonstrate our continued progress towards transforming the balance sheet to being safe and sustainable," said Ewen Stevenson, RBS chief financial officer.

"We are confident that in delivering our strategy, we will transform RBS into a low risk, resilient bank," he added.

Under the test conditions, Barclays' capital buffers would fall by 4% in the event of a major economic shock, leaving it with a buffer of 7.3%.

Unlike in previous years, the EBA did not judge whether banks had passed or failed its latest tests.

In 2014, if banks had a capital buffer of 5.5% after the stress test, then they were considered healthy, and analysts use that as an informal benchmark.

Both RBS and Barclays surpassed that mark in the latest test.

'Necessary resilience'

The Bank of England said in a statement: "The results for the four banks are consistent with those of previous Bank of England stress tests.

"They provide evidence that major UK banks have the resilience necessary to maintain lending to the real economy, even in a macroeconomic stress scenario."

Allied Irish Banks, which was bailed out by Irish taxpayers, showed a near 9% fall in capital levels in the test.

"AIB is well-capitalised and capital accretive. The results published today are point-in-time projections based on prescribed stress assumptions and should not be treated as indicative of the future financial performance," the bank said in a statement.

Italy's Monte dei Paschi di Siena was by far the worst performer, with the test forecasting that 14% of its capital would be wiped out under adverse conditions.

Shortly before the results of the stress test were released, Monte dei Paschi di Siena announced that it had secured the backing of a consortium of banks for a rescue plan.

The plan involves the sale of €9.2bn (£7.7bn) of bad loans and an injection of €5bn of fresh capital.

Founded in 1472, Monte dei Paschi is one of the world's oldest banks, but in recent years has been one of Europe's weakest, with €50bn of bad loans.

'Stress resistant'

Analysts were also keen to see how German banks performed under the test conditions. Deutsche Bank and Commerzbank were left with capital buffers of less than 8% at the end of the test.

"Commerzbank is robust and stress resistant," Commerzbank chief risk officer Marcus Chromik said in a statement.

"Even under the adverse conditions of the EBA stress scenario, the stability of the Bank would be guaranteed," Mr Chromik said.

After the financial crisis of 2008, US banks took hefty charges to clean-up their balance sheets, but European banks were much less aggressive, leaving them with billions of euros of poorly performing loans.

"Whilst we recognise the extensive capital raising done so far, this is not a clean bill of health," EBA Chairman Andrea Enria said in a statement. "There remains work to do."