Marcus Evans, Partner, ECB Office, KPMG:
“Banks have broadly passed the EBA test, but will they pass the market’s test? The 2016 Stress Test confirms stronger capitalisation across the sector, yet Price-to-Book ratios are at almost unprecedented lows. There is a tension between the Stress Test results and the market’s view of sector strength, which has yet to be resolved.
“When analysing 2016 Stress Test results at a country level, two important moving parts are national banking business models and Basel 3 transition arrangements. Countries where Basel 3 is already ‘fully-loaded’, or where banks earn substantial revenues from fees and commissions have been shielded to a degree (hence a low average impact for Sweden). Conversely, countries such as Germany that are still ‘phasing-in’ Basel 3, or where banks derive the highest proportions of income from credit and market risk suffered a greater CET 1 impact."
Seven Hall, Banking Partner, KPMG UK, says:
“While the 2016 adverse ‘macro’ scenario is of comparable severity to 2014, the stress test methodology has been tightened in several areas, including the introduction of conduct risk and restrictions on the pass-through of assumed rises in funding costs. On a like-for-like basis, the 2016 stress test therefore causes a deeper reduction in projected CET 1.
“The 2016 stress test time horizon (2016-2018) coincides with the last remaining strip of runway to ‘phase-in’ Basel 3 requirements. Banks located in countries where the phase-in is still ongoing therefore face a dual hit to capital in the projection period.”
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