4th December 2018

Stress tests show UK Banks have growing resilience to severe scenarios

S&P Global Ratings has said that the Bank of England's (BoE) latest stress tests show the UK's major banks and largest building society have strengthening balance sheets. The results suggest the banking group's continued resilience against potential Brexit-related turbulence, as discussed in the report, titled "Everyone Passed: Stress Tests Highlight Growing Resilience of UK Banks."

The stress test scenario is modelled to be more severe than the 2008 financial crisis, with banks incurring losses of over £160bn in the first two years of the stress period, and around £200bn over the full five years. The results show that such losses can now be absorbed within the capital buffers that banks have on top of their minimum requirements.

"This is a striking illustration of the extent to which bank capital requirements have been overhauled since the global financial crisis and the extent to which the major UK banking groups have strengthened their balance sheets," said S&P Global Ratings credit analyst Osman Sattar.

“We view the UK banking sector as broadly resilient to a tougher operating environment, and this resilience underpins our assessment of the UK banking sector's economic risk and industry risk as stable.

"Our current ratings on UK banks assume an orderly Brexit with a transition period. A disruptive Brexit that is accompanied by a severe economic shock – which we do not currently expect – represents a clear downside risk for UK bank ratings.”

Each institution cleared the hurdles set in the test, with none required to revise its capital plans. The group comprised: Barclays, HSBC Holdings, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland Group, Santander Group Holdings UK, and Standard Chartered.