Santander, BBVA and Bankinter would suffer less impact than the average of European banks in the adverse scenario proposed by the European Banking Authority (EBA, for its acronym in English) in its stress tests, as reflected in the results of the stress tests published this Friday.
Sabadell Bank, for its part, has been more penalized because the most adverse (and unlikely) scenario focuses on Spain and the United Kingdom as the most affected markets in the world, only behind Peru, precisely the two countries in which the entity develops its activity.
The stress tests of the EBA They cover a period of three years, from the end of 2020 to the end of 2023, with a baseline and an adverse scenario.
Banco Santander had at the end of 2020 a capital ratio CET1 ‘fully loaded’ of 11.89%. The results of the EBA tests indicate that, in the adverse scenario, this ratio would stand at 9.32% by the end of 2023, so the impact would be 258 basis points.
BBVA would suffer an impact of 303 basis points in its CET1 ratio ‘fully loaded ‘, which would stand at 8.69% at the end of the period. The impact for Bankinter would be 104 basis points, with a ‘fully loaded’ ratio of 11.25% at the end of 2023, while Banco Sabadell would place its ratio at 6.54% in the adverse scenario in 2023, with an impact of 548 basis points.
Regarding the results in the solvency ratio CET1 ‘phased in’ (capital ratio calculated according to the transitional regime), Banco Santander would place it at 9.93% in the adverse scenario (-240 basis points), BBVA at 8.15% (-319 basis points), Bankinter at 11.25% (-104 basis points) and Sabadell at 7.07% (-550 basis points).
Regarding the results for the European banks as a whole, the impact in the adverse scenario on the ‘fully loaded’ CET1 capital ratio is 485 basis points, which places its ratio for the end of 2023 at 10.2% ( -497 basis points and ratio of 10.3% temporarily).
Thus, the impacts suffered by Banco Santander, BBVA and Bankinter they are lower than the European average, while the impact on Sabadell for the adverse scenario would be higher.
In the case of Bankinter, in addition to having passed the stress tests as the Spanish bank with the least impact on its solvency in the stressed scenario, it was the third with the least impact among all the entities analyzed.
By looking only at the largest benches in the European UnionBanco Santander is the one that would destroy the least capital in the adverse scenario, and BBVA would occupy the second place.
Considering the ‘fully loaded’ CET1 capital ratios with which the entities would end 2023 in the adverse scenario, three of the four Spanish banks are below the European average, with the solvency of Bankinter the only one that would exceed the average of 10.2% of European entities.
All generate capital in the baseline scenario
In the baseline scenario, the most likely, Santander Bank would generate 305 basis points of CET1 capital ‘fully loaded’ by the end of 2023, placing its ratio at 14.94%.
On your side, BBVA would generate 128 basis points of capital in the three years, placing its solvency ratio at 13% at December 31, 2023, Bankinter would gain 235 basis points, with a ratio of 14.64%, and Banco Sabadell would generate 73 basis points of capital, with a CET1 ratio ‘fully loaded’ of 12.75%.
The stress tests, which were not carried out last year due to the pandemic, have been carried out on a sample of 50 banks from 15 European countries, of which 38 are under the jurisdiction of the Single Resolution Mechanism (SSM). The EBA began the stress tests on January 29 and decided to exclude CaixaBank, being in the process of merging with Bankia.
The stress testinclude a hypothetical scenario in which institutions have to overcome a severe recession lasting more than three years. Due to the effect of the health crisis, this year’s adverse scenario takes as a reference a narrative in which Covid-19 is still present in an environment of lower interest rates and for longer. Given this, negative confidence would further prolong and harden the economic contraction.
Specifically, the scenario set out by the EBA is based on a fall in the gross domestic product (GDP) of the European Union (EU) in 2020 of 6.9%. From there, banks have had to simulate a scenario in which the economy contracts by 1.5% in 2021, 1.9% in 2022 and 0.2% in 2023.
With regard to unemployment, banks have managed a scenario in which unemployment would increase by 4.7 percentage points in these three years, reaching a cumulative 10% in 2021, 11.2% in 2022 and 12 , 1% in 2023.
The macroeconomic panorama of the review is completed with an average inflation in the Twenty-seven of just 0.7%, a decrease in the prices of residential real estate 16.1% and up to 31.2% in the case of commercial real estate. Furthermore, share prices in global financial markets would fall by around 50% in advanced economies and up to 65% in developing economies.
In the case of Spain, banks have had to cope with a simulated fall in GDP of 0.9% in 2021, 2.8% in 2022 and a growth of 0.5% in 2023. In addition, they have also had to incorporate into their calculations a level of unemployment that will reach 21.9% in 2023, compared to 14.3% in the base scenario.