July 29, 2021

Guindos asks that BBVA and Sabadell strengthen their "weak" capital position | Economy

Guindos asks that BBVA and Sabadell strengthen their "weak" capital position | Economy

The vice president of European Central Bank (BCE), Luis de Guindos, It has premiered in an act of relevance with a speech of draft. Three days after publishing the stress tests that have measured the resilience of banks to a recession, has thrown a jug of cold water to the optimism of some entities to say: "Banks with capital ratios in the adverse scenario by below 9%, "which is the case of BBVA, with 8.8%, and Sabadell, with 7.58%," show a weaker but still satisfactory capital position, these 12 entities, which represent almost 40% of the total assets of the sector, should increase the strength and improve the capital positions to face the future challenges and, therefore, will be closely monitored ", sAccording to the speech in Brussels that appears on the website of the ECB.

In the first reaction of an official body after the tests to the bank last Friday, which had not approved or suspended, Guindos sets the bar of strong entities in 9% of capital CET 1 in the adverse scenario. The comment does not leave in a reassuring place CaixaBank, which is the first that exceeds 9% with a 9.11% or Santander is at 9.20%, also close to the barrier of the vice president.

CaixaBank and Santander are in another group, "which should reduce their vulnerability," said Guindos after stress tests conducted by the European Banking Authority (EBA), in collaboration with the ECB. "In the second category there are 12 banks had basic capital ratios between 9% and 11%, which represents around 45% of total assets.These banks showed a reasonable degree of resistance in general. These banks still have work to do to improve capitalization and reduce their vulnerability to stress. "

40% of the sector is weak

After the stress tests, the BBVA recalled that the EBA had not taken into account the sale of 68.19% in its Chilean subsidiary to Bank of Nova Scotia (Scotiabank) for just over 1,873 million euros last July, whose positive impact on its capital ratio CET1 'fully loaded' has been 50 basis points.

For its part, Sabadell stressed that it no longer has part of the costs of its subsidiary TSB in the United Kingdom loaded on the test and that it has sold portfolios of real estate assets, which consumed capital. These positive elements on your capital have not been considered in the stress test and would increase your capital in the adverse scenario for 2020, according to the entity.

The message is serious, not only because it affects the second and fifth banks in Spain, but because includes European giants such as Deutsche Bank, Société Générale, BNP Paribas, Lloyds and Barclays, entities that due to their size are almost impossible to rescue. These big five, and others like the Bank of Ireland, are among the most important in Germany, France and the United Kingdom. In addition, as Guindos recalls, these 14 weak entities represent 40% of the assets of the European sector, another disturbing factor if the European economy slows down in parallel to the ECB stop buying financial assets in the market.

The EBA did not establish a threshold to approve or suspend its examination, although the market, in the same way as in the previous stress tests, takes as a reference the solidity of the entities with a ratio of 5.5% of the highest quality capital CET1 in the worst scenario. No entity achieved a result below that figure. In fact, only three entities were below 7%: Lloyds (6.8%), BPM Bank (6.67%) and Barclays (6.37%).

"The high level of resilience of the banking system in the euro zone should not hide the fact that certain vulnerable areas remain," the Spanish banker warned, after indicating that the results of the banks supervised by the ECB have "improved" in comparison with the stress tests of two years ago.


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