Statement on the publication of the 2016 EBA EU-wide stress


Statement on the publication of the 2016 EBA EU-wide stress test results

The Royal Bank of Scotland Group plc ("RBS") notes the announcement made by the European Banking Authority (“EBA”) and the Prudential Regulation Authority (“PRA”) regarding the results of the 2016 EBA EU-wide stress test.

Our news

01 August 2016

 

The 2016 EBA EU-wide stress test does not contain a pass/fail threshold. These results will be used as an input into our capital plan submitted to the PRA.

On a fully loaded Basel 3 basis, RBS’s modelled Common Equity Tier 1 (“CET1”) ratio under the adverse scenario was 8.1% as at 31 December 2018. The low point CET1 ratio under this scenario was 7.8% as at 31 December 2017.

RBS’s modelled leverage ratio under the adverse scenario was 3.6% on a fully loaded Basel 3 basis and 4.2% under the PRA transitional definition for leverage ratio as at 31 December 2018. The low point leverage ratio under this scenario was 3.5% on a fully loaded Basel 3 basis as at 31 December 2016 and 4.2% under the PRA transitional definition as at 31 December 2017.

The cumulative impacts on modelled operating profit, impairments in the banking book and losses in the trading book under the adverse scenario over the three years to 31 December 2018 are shown in the table below.

Table 1 – EBA CET1 ratio stress test result under the Adverse scenario

 

         
Fully loaded Basel 3
31 December 2015 published CET1 radio 15.5%
(GBPm)          
3-year cumulative net interest income 25,331
3-year cumulative gains on financial assets and liabilities held for trading or designated at fair value through profit and loss, net 1,197
3-year cumulative impairments on financial assets not measured at fair value through profit or loss (7,916)
3-year cumulative profit / (loss) before tax from continuing operations(1) (10,686)
CET1 capital 25,577
EBA calculated risk-weighted assets 291,624
Resulting EBA-calculated CET1 ratio in 2018 8.1%

(1) Including stressed conduct and litigation losses.

Table 2 – EBA leverage ratio stress test result under the adverse scenario

 

         
Fully loaded Basel 3
31 December 2015 published leverage ratio 5.6%
(GBPm)          
Tier 1 capital 29,415
Total leverage ratio exposures 702,484
Resulting EBA-calculated CET1 ratio 3.6%

Note: The EBA stress test results are based on hypothetical adverse and baseline macroeconomic scenarios and a common methodology developed by the EBA (including a static balance sheet) applied across all participating banks. Neither the baseline scenario nor the adverse scenario should in any way be construed as an RBS forecast or directly compared to other information prepared by RBS

 

The EBA stress test results cannot be used to infer outcomes of the 2016 Bank of England (“BoE”) stress tests for UK banks. There are key distinctions between the two regulatory stress tests, including a static balance sheet assumption for the EBA exercise therefore a number of initiatives such as balance sheet reduction (including asset sales and divestments), business growth and cost savings are not factored into the stress outcomes.

The EBA stress tests, like those run by the BoE, currently include substantial stressed conduct and litigation charges in the adverse scenario only, primarily in relation to US RMBS.

Commenting on the results, Ewen Stevenson, Chief Financial Officer, said:

“The EBA stress test results demonstrate our continued progress towards transforming the balance sheet to being safe and sustainable. Over recent years we have materially strengthened our CET1 ratio, substantially reduced our balance sheet and leverage, and continued to de-risk our asset exposures.

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

RBS will announce its 2016 Interim Results on Friday, 5th August 2016.

Click here to read more about the detailed results of the stress test, as well as information on RBS exposures to central, regional and local governments in the European Economic Area.

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