Fra ItalyEurope24
Friday July 29, at 10pm in Italy, the curtain will be raised over the stress test of European banks. Started in February, the test was carried out by the European Banking Authority (EBA) and theEuropean Central Bank on 53 European banks, which represent 70% of the European banking sector.
Five Italian lenders took part in the exercise: UniCredit,Intesa Sanpaolo, Banca Monte dei Paschi di Siena, Banco Popolare and UBI Banca. Simplified tests were carried out on the remaining 80 European banks which are under ECB supervision, including 10 in Italy.
The results, which have been informally sent to the banks, will be confidential and no formal communication will be given to the market.
One certainty emerging from this round of tests – the second carried out by the EBA since 2014 – is that no automatic request for capitalization will be issued. A confirmation came by Andrea Enria, the head of the EBA, who explained that this year’s stress test “does not set minimum thresholds for a promotion or failure of single banks.”
In the 2016 exercise, banks were tested under a baseline and an extreme scenario. Among the factors intervening in the adverse scenario were a GDP decline in 2016-2018, a hefty haircut on sovereign bonds and a combined collapse in prices of residential and commercial property.
In both scenarios, EBA did not ask banks to meet a minimum CET 1 capital threshold (which was of 5.5% in 2014, under the adverse scenario).
The results will provide precious information that the ECB can use, in a subjective manner, as part of SREP, the ongoing process of prudential revision due for completion by the end of the year. In this context, the ECB will use the results of the stress test to define the capital guidance for 2017.
According to market expectations, the outcome for the Italian banks that will communicate the results, apart from MPS which is under scrutiny of the government and European banking supervision, is reassuring.
“We are going very, very well. Our capital position is good and our business model works. We are sure that we will present a very good situation compared to the other European banks,” said the Chairman of Intesa Sanpaolo, Gian Maria Gros-Pietro, in response to a question on the stress test.
However, critical issues have emerged related to the same nature of the exams. The exercise stresses banks’ balance sheets against specific issues like interest margins, credit quality, and sovereign bonds. In doing so, commercial banks – the dominant model in Italy – were the most penalized.
Moreover, the exercise carried out by the EBA and the ECB is based on a “faded” accounting picture, because based on the 2015 results. Therefore, the tests do not consider the so-called “remedial actions” implemented by institutions to improve their capital strength or planned during the solar year.
This is a factor that instead needs to be taken into account to assess the real, not simulated, solidity of the banks.
© ITALY EUROPE 24
