EBA: Stress tests of European banks have shown their resilience

This year's stress tests of European banks indicate that they should prove resilient to an unfavorable scenario of a prolonged deterioration in macroeconomic conditions, according to the European Banking Authority (EBA), which conducted the tests. Pekao reported that it was once again among the most resilient banks.

The study covered 64 banks. The scenario analyzed in the stress tests assumed a sharp and prolonged deterioration of the global macroeconomic environment, triggered by geopolitical tensions, particularly in the Middle East, and increased protectionism worldwide, including the imposition of new tariffs. The scenario predicted rising inflation, a recession in the EU, higher unemployment, and a decline in asset valuations. A 6.3% recession compared to 2024 levels and a 5.8 percentage point increase in unemployment were assumed.

As the EBA announced on Friday, the results indicate that the European banking system would be able to support the economy and lend to businesses and households under such conditions, even despite projected losses of around €550 billion over three years. Even under such adverse conditions, all banks would meet their capital structure requirements at the end of the three-year turbulence period. Resilience is measured as the difference in the consolidated Common Equity Tier 1 (CET1) ratio without transitional provisions between the assumed starting point in 2024 and the stress scenario in 2027.

Among Polish banks, PKO BP and Pekao were included in the study. Bank Pekao announced that it was the most resilient bank in the EBA stress tests. "The EBA stress tests are a crucial test of our preparedness for crises and macroeconomic turmoil. Unfortunately, recent years have not spared us from such turmoil, which is why the resilience of financial institutions, which are key to the stable functioning of the entire economy, is so crucial," said Bank Pekao CEO Cezary Stypułkowski, quoted in the bank's press release.

This year's results showed that, without the application of Bank Pekao's transitional provisions, the consolidated CET1 ratio would have been 20.03% in 2027 under a base case scenario with a three-year profit of €3.78 billion, and 17.03% under a stress case scenario with a three-year profit of €2.02 billion. Both capital ratios are significantly above the regulatory requirements and target capital ratios, the bank emphasized.

As assessed by the Polish Financial Supervision Authority, the results of European stress tests confirm that the materialization of a shock scenario, assuming, among other things, an increase in interest rates, does not pose a threat to the stability of Polish banks.

According to the Polish Financial Supervision Authority (KNF), the situation of the Polish banking sector has remained stable in recent quarters. Persistently elevated interest rates are contributing to banks generating record interest income, which translates into historically high net profits. Thanks to banks' intensified efforts to amicably resolve the issue of foreign currency mortgage loans , as well as ongoing litigation, the materialization of legal risks related to this portfolio is having a decreasing impact on banks' results, the Commission assessed.

"The consistent and conservative dividend policy pursued by the Polish Financial Supervision Authority (KNF) and the banks' decisions in this regard have enabled the building of appropriate capital buffers, which, even in crisis situations such as the Covid-19 pandemic or the outbreak of war in Ukraine, ensure the stable functioning of banks," the KNF emphasized. (PAP)

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