Standard Chartered and RBS limp through BoE stress tests

THE TWO LENDERS ESCAPE HAVING TO RAISE CAPITAL DESPITE FALLING SHORT IN ASSESSMENT

Standard Chartered Plc and Royal Bank of Scotland Group Plc escaped having to raise additional capital in the Bank of England’s latest stress test, even though they fell short in some parts of the assessment.

RBS failed to meet its individual-capital guidance in the examination, based on end2014 data, the BoE’s Prudential Regulation Authority said in a statement yesterday. Standard Chartered did not meet its Tier-1 minimum capital ratio, a measure of financial strength.

The BoE said Standard Chartered’s “recent strategy review and the associated steps taken to strengthen its capital position” meant it didn’t need to submit a new capital plan. RBS was also let off based on previous capital raising and debt issuance plans.

This was the BoE’s second public stress test, as it seeks to reinforce investor confidence in financial firms seven years after the global banking crisis.

Britain’s largest banks were probed on their resilience to shocks including a sharp slowdown in the Chinese economy, negative Eurozone growth and plunging commodity prices.

Under the stress scenario, Standard Chartered’s ratio of common equity Tier-1 capital to risk-weighted assets, a measure of financial strength, fell to as low as 5.1 per cent, above the 4.5 per cent pass mark, while RBS dipped to 5.9 per cent.

The banks also had to maintain a 3 per cent leverage ratio to pass the test. They were allowed to include management actions such as asset disposals or cost cuts they would take under stressed conditions in order to pass.

RBS and Standard Chartered would have failed on this measure if they hadn’t been allowed to take management actions or if bonds hadn’t converted to equity.

The BoE published the results alongside its latest Financial Stability Report in which it outlined