RCB Bank completes ECB stress test with CET1 at 16.6%

RCB Bank Ltd is announce that it has successfully completed the stress test carried out directly by the European Central Bank, which was subject to the European Banking Authority (EBA) methodology.

The stress test results show that the bank’s Common Equity Tier 1 ratio (CET1) is 16.58% under the adverse scenario as at 31 December 2018, well above the regulatory minima, including the fully phased in buffers applicable to the bank.

RCB Bank Ltd has been supervised directly by the ECB in coordination with the Central Bank of Cyprus under the Single Supervisory Mechanism since November 2014. It was not on the list of 51 EU banks for which the EBA conducted the stress tests. Instead, it belongs to the list of the institutions for which the ECB performed the stress tests as part of the annual Supervisory Review and Evaluation Process (SREP).

Of the 51 banks subject to the EBA-led stress test 37 are directly supervised by ECB Banking Supervision, covering 70% of banking assets in the euro area.

Separately, the ECB conducted in parallel a stress test of an additional 56 banks under its direct supervision, using the same methodology. This is an internal supervisory exercise conducted by the ECB and the results are not published by the ECB, but by the individual banks as there were no banks “failing” or “passing”. The Pillar 2 capital cannot be mechanistically computed from the stress test results as these are one, but not the only factor taken into account. The Pillar 2 capital will be determined in the SREP decisions later this year.

Some member states (Cyprus, Estonia, Finland, Italy, Latvia, Lithuania, Luxembourg and Slovakia) decided to impose the full capital conservation buffer (CCB) on their banks without any phase-in as of 1 January 2016. Other member states opted for a four-year phase-in. The CCB is part of the Basel III capital rules and is designed to ensure that banks build up capital buffers which can be drawn down as losses are incurred. The CCB is to reach 2.5% of the risk-weighted assets as of 1 January 2019 at the latest.

In 2014, 130 banks took part in the comprehensive assessment, which consisted of an asset quality review and a stress test. The participating Cypriot banks were Bank of Cyprus, Hellenic Bank, Cooperative Central Bank and RCB Bank.

In preparation for the ECB’s takeover of its supervisory responsibilities, the exercise aimed to identify possible capital shortfalls and ascertain if any banks required immediate recapitalisation measures. As euro area banks have since moved to more of a steady state and have become better capitalised overall, the aim of the 2016 exercise is rather to assess remaining vulnerabilities and understand the impact of hypothetical adverse market dynamics on banks. The stress test as part of the 2014 comprehensive assessment and the 2016 stress test are hence quite different in nature.