European stress test: Not a game changer - Danske

On Friday, the European Banking Authority released the results of the stress test of banks. According to analysts from Danske Bank the results removed an important short-term risk but they do not expect it to be a game changer.

Key Quotes:

“The EU banking stress test released late Friday was better than feared and should - at least in the short term - reduce tail risk. The European banking sector has been under pressure this year as illustrated by EURO STOXX Banks having dropped 30% YTD.

“Despite the comprehensiveness in this exercise some uncertainty is likely to prevail as was also the case after the 2014 exercise. While removing an important short-term risk, we do not expect the result of the stress test to be a major game changer.”

“The EBA reports that on an aggregate level the 51 banks included had a CET1 ratio of 13.2% at the end of 2015. This is a significant improvement of the capital base and 200bp higher than in the sample in 2014 and 400bp higher than in the 2011 stress test.”

“The ECB published a statement following the release of the stress test and concluded that overall supervisory capital expectations will remain broadly stable compared to 2015: ‘The results of EU-wide bank stress tests show that euro area banks improved their resilience and overall supervisory capital expectations will remain broadly stable compared to 2015.’”