Royal Bank of Scotland has emerged as the weakest lender in the Bank of England’s annual stress test of the banking system.
In its banking health check report, published today alongside its financial stability report, the Bank says RBS did not meet its common equity tier 1 capital rate requirement as well as its tier 1 leverage hurdle rate, which calculates the buffers that banks keep for times of financial stress.
RBS’ weakness was mostly due to its sensitivity to ongoing conduct fines, impairments and regulatory changes to risk-weighted asset requirements, the BoE says.
The bank has already issued a plan overnight to bolster its financial strength by £2bn with the approval of the Prudential Regulation Authority.
In a statement, published today, RBS says it plans to “execute an array of capital management actions” as a result of the BoE’s stress tests.
RBS chief financial officer Ewen Stevenson says: “We are committed to creating a stronger, simpler and safer bank for our customers and shareholders.
“We have taken further important steps in 2016 to enhance our capital strength, but we recognise that we have more to do to restore the bank’s stress resilience, including resolving outstanding legacy issues.”
Overall, in its third annual stress tests, the central bank warned of a “challenging period of uncertainty around the domestic and global economic outlook”.
The bank stress tests did not reveal capital inadequacies for four out of the seven banks’ balance sheets it analysed for the year ending in 2015 including HSBC, Lloyds Banking Group, Nationwide Building Society and Santander UK.
However, it found Barclays and Standard Chartered were weak in the hypothetical scenarios of including falls in house prices and the global economy contracting by 1.9 per cent.
The two banks are not being forced to raise new money. Barclays says it already has a plan in place to improve its financial position while Standard Chartered has not needed to take any action.
HSBC, Nationwide, Lloyds, and Santander UK have all passed the test.