The European banking authorities are obsessed with the fact that the financial sector is no longer a factor in accelerating crises, as happened in the past. And doubts about the European recovery are on the table, with the ECB announcing the withdrawal of asset purchases. After five tests carried out since 2011 (with little prestige because afterwards banks not mentioned were rescued, although those that remained the last ones did fall with the passage of time, as happened to Popular), on the sixth occasion The conditions of a hypothetical recession have hardened and have proven how the bank would be in capital CET 1 fully loaded (the highest quality) and benefits.
The last Friday's tests, from the European Banking Authority (EBA), did not grant approved or suspended, but reflected that the sector could withstand a strong crisis, according to the supervisor. They examined 48 EU banks plus Norway (although there were only entities from 15 countries because 30,000 million of assets were required to be examined).
After the initial euphoria, it is proven that, unlike other tests, in this test some of the major European banks are the most vulnerable entities due to having a lower capital ratio in 2020 in the face of a recession. Among the ten worst are Barclays, Lloyds, Société Générale and Deutsche Bank, with balances exceeding one trillion euros, that is, larger than the Spanish economy. They belong to the big economies, the British, French and German, which reveals that although the GDP of these countries has risen in the ten years after the crisis, its main banks are still weak.
Supervisors are aware that these entities will require special attention because they are almost impossible to rescue, due to their financial interconnections and the size of their assets. Francisco Uría, partner in charge of financial services at KPMG, believes that this situation is explained, in part, because the test has punished banks that work in or with the United Kingdom very badly by using a Brexit scenario without an agreement.
HSBC, the one that would lose the most
The test offers the results of the entities in 2018, 2019 and 2020 in a hypothetical recession. Thus, HSBC, the largest European bank, would be the one that would lose more money, with 15,715 million accumulated in the triennium; Deutsche Bank, 15,334 million; Barclays, 11,244 million; BNP 7,468 million, Lloyd's 6,710 million, Société Générale, 6,416 million in the red.
Among the largest in Europe there is only one that would be in losses during the three years, Deutsche Bank. This also happens to a Spaniard, Sabadell, who would accumulate red numbers by 1,631 million, while Santander, CaixaBank and BBVA would present accumulated profits, although they would also be in losses in 2018.
The results of the four Spanish banks show that, according to the test, they need more capital to protect themselves from possible crises. But capital is expensive and erodes margins, the bankers respond. By entities, the best is Santander, but in the 32nd position of the table, CaixaBank in 34, BBVA in 37 and Sabadell in 43 of 48.
By country, Spain is one of the countries in which its banks have less capital wear to withstand a recession, but, at the same time, is the second worst country by final capital ratio. That is to say, when starting from a low level, although the erosion of capital is not great, it ends in a bad final position.
The economist José Carlos Díez, recalls that "we are still on the razor's edge. What would happen if we remove the tax credits or DTAs, which add capital? "In his opinion, the ECB should limit the payment of dividends and prohibit them from offering mortgages without margin. "And the government that forgets to force them to pay more taxes, the important thing is to recapitalize soon," he adds.