RBS and Standard Chartered Weakest of UK Banks After Stress Tests

‘These strong results… demonstrate the progress we have made in de-risking our balance sheet as well as the group’s strong capital position and capital-generative business model, ‘ says CEO António Horta-Osório.

The improvement was testament to reforms brought in after the 2008 meltdown that have “have rebuilt capital and confidence in the United Kingdom banking system”, he explained.

Andrew Montlake, the director of Coreco mortgage brokers, said other lenders could follow: “This is a big change from Barclays and could well spark a number of similar reviews from lenders who want to be seen to be taking into account the effect of forthcoming tax changes”.

Economists chose the scenario after the Financial Policy Committee (FPC) raised concerns about an increase in global and financial risks during 2014.

Announcing the results of its annual stress tests of the seven biggest lenders, the Bank said it would monitor developments in buy-to-let activity but did not announce any new measures to curb mortgage approvals.

The participants included Barclays, HSBC, Lloyds, Nationwide, and Santander UK, RBS, and Standard Chartered. Having said this, both Standard Chartered and RBS were highlighted as falling below the minimum capital requirements.

Now set at zero, the CCB was introduced globally after the financial crisis forced taxpayers to rescue undercapitalized lenders.

The CCB aims to rein in risky lending at frothier stages of the credit cycle.

“By moving early, before risks are elevated, the FPC expects to be able to vary the countercyclical capital buffer gradually, and to reduce its economic cost”, the bank said.

The Prudential Regulation Authority (PRA), another overseeing body in the stress testing process, did not recommend that the RBS should submit another capital plan. The plan would also improve the banks common equity Tier 1 ratio, boosting it from 11.5% to 13.1%.

The BoE has said it wanted to give banks more clarity about its long-run aims for the amount of capital they hold.

“The FPC remains alert to financial stability risks arising from rapid growth in buy-to-let mortgage lending and notes the difference in underwriting standards in the owner-occupier and buy-to-let mortgage markets, in particular in the typical interest rates used in affordability stress tests”. In the first nine months of 2015, buy-to-let lending rose by 10% compared with 0.4% for owner-occupied homes. The BoE has not demanded immediate action on this, and is likely to raise the buffer steadily to this level.

“Now, moving out of the financial crisis there is a risk banks may stop listening”.

It added: “New loans to buy-to-let investors are often subject to less stringent affordability tests than loans to owner-occupiers”.