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Exercises conducted by the EBA

(i) Results of the 2011 EU-wide stress testing exercise

The relevant press release is presented


Introduction
 
The 2011 EU-Wide Stress Testing Exercise of European Banks was conducted under the coordination of the European Banking Authority (EBA), in cooperation with national supervisory authorities, the European Central Bank (ECB), the European Commission and the European Systemic Risk Board. The 6 largest Greek banking groups (National Bank, EFG Eurobank, Alpha Bank, Piraeus Bank, ATEbank and TT Hellenic Postbank), representing over 90% of the total assets of the Greek banking system (excluding foreign subsidiaries), participated in the exercise.  

With regard to the threshold and the capital adequacy ratio, two key features distinguish this exercise from that performed last year: First, the threshold was set at 5% this year, compared with 6% last year. Second, the definition of capital in this year’s exercise was the Core Tier 1 capital ratio, compared with the Tier 1 capital ratio in last year’s exercise. The scenarios were specified by the ECB and cover a time horizon of two years (2011-2012). An adverse (‘what if’) scenario was considered, reflecting tail risks. Another important difference compared with last year’s exercise is that in the present one claims on central governments that are recorded in the banking book of credit institutions were also assessed under stress using a methodology similar to the one applied to other credit portfolios (corporate, mortgage and consumer loans). The starting point of the exercise is the balance sheet data as at 31.12.2010.

The consistent application of the methodology and the reliability of the results were enhanced by a peer review. Experts from supervisory authorities of several countries in Europe, working together with EBA and ECB staff, assessed the quality of the data used and the results of the exercise.

Assumptions and results of the adverse scenario

The results of the exercise under the adverse scenario are presented in the table below:

Credit Institution




 

 

Core Tier 1 ratio as at 31.12.2012

Core Tier 1 ratio as at 31.12.2012

(under the adverse scenario)
(1)

(under the adverse scenario, including all additional measures to improve the Capital Adequacy Ratio)
(2)

National Bank

7.70%

9.70%

Alpha Bank

7.40%

8.20%

TT Hellenic Postbank

5.50%

7.10%

Piraeus Bank

5.30%

6.30%

EFG Eurobank

4.90%

7.60%

ATEBank

-0.80%

6.00%

Total capital buffer above the 5% threshold

 

 

EUR 2.44 billion

EUR 5.05 billion


In column 1 of the table, the Core Tier 1 ratio is calculated taking into account measures that institutions undertook in the period up to 30 April 2011. These actions consist exclusively of capital increases that were fully committed, government support and mandatory restructuring plans approved by the European Commission. Column 1 does not take into account generic provisions and measures taken or announced after 30 April 2011.

For the 6 Greek banking groups considered as a whole, the results of the exercise (column 1) indicate, by the end of 2012, a capital surplus of €2.44 billion above the amount that corresponds to the Core Tier 1 capital ratio threshold of 5%.

Under the adverse scenario, before taking into consideration additional mitigating measures, four out of the six Greek banks come in above the 5% threshold – National Bank, Alpha Bank, TT Hellenic PostBank and Piraeus Bank. One bank – EFG Eurobank – comes in marginally below the 5% threshold and another – ATEbank – comes in significantly below the 5% threshold.

Column 2 gives a more representative picture of banks’ capital position, as the calculation of the Core Tier 1 ratio takes also into account:

(a) additional mitigating measures taken or planned (e.g. sales or mergers of subsidiaries, issuance of convertible bonds, disinvestments, etc.), and

(b) generic provisions already accumulated to cover future losses.

Indeed, these various measures substantially increase the Core Tier 1 ratios of each of the banks, so that all of the banks achieve ratios well above the 5% threshold. For all six banks, taken as a whole, the capital surplus above the 5% threshold more than doubles, reaching €5.05 billion.
More specifically, ATEbank has accumulated significant generic provisions (€750 million), which, as noted above, were not incorporated into the results of the exercise reported in column 1. Moreover, the General Assembly of shareholders approved the issuance of convertible bonds amounting to €235 million. Taking both of the preceding measures into account, its Core Tier 1 ratio stands at 6% at the end of 2012.

For EFG Eurobank, incorporating additional mitigating measures that have either been taken or planned and communicated to the Bank of Greece, leads to a Core Tier 1 ratio of 7.6% by the end of 2012. These measures include the takeover of DIAS Portfolio Investment Company SA, the use of generic provisions already accumulated by the bank, the issuance of convertible bonds, the sale of a majority stake of its subsidiary Eurobank Polbank in Poland, and the placement of a majority stake of its subsidiary Eurobank Tekfen in Turkey.

As shown in column 1, TT Hellenic Postbank and Piraeus Bank have Core Tier 1 ratios between 5% and 6%, under the adverse scenario. Taking, however, into account measures that have either been implemented or planned, leads to increases of the Core Tier 1 ratios of both banks to levels above 6%. Specifically, in the case of TT Hellenic Postbank, taking into account generic provisions and the reduction of the trading portfolio already achieved, the Core Tier 1 ratio reaches 7.1% at the end of 2012. In the case of Piraeus Bank, the Core Tier 1 ratio reaches 6.3% at the end of 2010, reflecting the issuance of convertible bonds already approved by the General Assembly of the bank’s shareholders and the announcement of the sale of the bank’s subsidiary in Egypt.

General comments

By construction, a stress testing exercise does not aim to predict expected outcomes, as the adverse scenarios are intentionally constructed as “what if” scenarios reflecting tail risks. Consequently, the results of the adverse scenario do not reflect the current situation or possible immediate capital needs. Nevertheless, the adverse scenarios provide a useful supervisory tool for monitoring the soundness of the banking system that can be used for timely preventive intervention, should such intervention be judged necessary.

The positive results are due to the fact that Greek banks have during the past two years substantially increased their capital, with the encouragement of the Bank of Greece. Other actions taken included strategic corporate moves, internal financing, non-payment of dividends and issuance of preference shares.

The Bank of Greece will continue to closely follow all developments, to ensure that credit institutions maintain the requisite levels of capital and that they take all necessary measures to bolster capital adequacy.

In this context, based on the timetable for the implementation of the 'Memorandum of Economic and Financial Policies' (MEFP), and to facilitate the access of Greek banks to international money markets, the Bank of Greece has required credit institutions to develop and implement medium-term funding plans, while maintaining a minimum Core Tier 1 capital ratio of 10% from the beginning of 2012. Additionally, the Bank of Greece commissioned a diagnostic study of the loan portfolios of Greek banks. The study will be completed by the end of 2011 and the results will be considered, inter alia, for the assessment of the additional capital buffers under Pillar 2. Furthermore, the Hellenic Financial Stability Fund, which has been established under the MEFP, provides an additional means of securing the capital adequacy of Greek banks, if needed.

By strengthening the confidence of investors and depositors, the above measures at the level of the financial system, together with the measures that will be taken by each credit institution, will ensure financial stability.

The detailed results for each bank are available on the banks’ websites.

Further information on the scenarios, methodology and aggregate results is available on EBA's website (http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing/2011).


(ii) Results of the 2010 EU-wide stress testing exercise

The relevant press release is presented


Introduction

The Bank of Greece welcomed the publication of the results of the EU-wide stress-testing exercise, which was conducted by the Committee of European Banking Supervisors (CEBS) and national supervisory authorities, in close cooperation with the European Central Bank. The aim of the test was to assess the overall resilience of the EU’s banking sector to major economic and financial shocks. The exercise represents an important step forward in supporting the stability of the EU and euro area banking sectors.

The exercise used a sample of 91 EU banks from 20 Member States, covering at least 50 percent of each country’s banking sector on a consolidated basis. Two scenarios were used for the conduct of the exercise for both 2010 and 2011: (1) a baseline scenario, which closely follows the consensus of macroeconomic projections for 2010 and 2011, and (2) an adverse scenario, which incorporates tail risks, especially related to sovereign debt and a significant deterioration in macroeconomic conditions. The adverse scenarios used are designed as “what-if” scenarios reflecting severe assumptions, which are very unlikely to materialise.

In the case of Greece, the adverse scenario includes a much sharper economic downturn in 2010 and 2011 than currently envisaged by international institutions, and interest rates much higher than current ones. 

The six largest Greek banking groups participated in the stress tests - namely, NBG, EFG Eurobank, Alpha Bank, Piraeus Bank, ATEBank and TT Hellenic Postbank. These banks account for more than 90 percent of the Greek banking sector’s assets (excluding foreign banks’ subsidiaries).

Results

For the six banks as a whole, the results indicate a net surplus of Tier 1 capital of the order of €3.3 billion above the 6 percent ratio of Tier 1 capital that was agreed as a benchmark solely for the purpose of the stress test. This benchmark, however, should not be construed as a supervisory minimum; the supervisory minimum for Tier 1 capital is set at 4 percent. It should also not be construed as a target level that reflects each institution’s risk profile as set in the context of supervisory function in the application of Pillar 2 methodology, defined by the EU Directive (ΕC/2006/48).

The individual results for the six banks are available on their websites. The results show that under the adverse scenario, including sovereign shock, five of the six banks pass the test. Four of these banks (TT Hellenic Postbank, Alpha Bank, EFG Eurobank, NBG) come in above the benchmark, while one (Piraeus) comes in at the benchmark of 6%. For ATEbank, the Tier 1 ratio falls to 4.4 percent at the end of 2011, indicating a shortfall of €242 million.

It is important to emphasize that, under the baseline scenario, all six Greek banks exceed the 6% benchmark.

Comments on the results

In order to properly interpret the results, it is crucial to recognise the exact significance both of the indices used and the monetary amounts resulting from the application of the various individual scenarios that were constructed for the purposes of the EU-wide exercise. The results under the adverse scenario reflect neither the present situation nor the possible immediate capital needs. By construction, a stress test does not aim to predict expected outcomes, as the adverse scenarios are intentionally constructed as “what if” scenarios.

At the end of 2009, the six participating banks had Tier 1 ratios between 8.4 percent and 17.1 percent. Although the application of extremely adverse assumptions would lead to a decline of the Tier 1 ratio ranging from 3 to 7 percentage points, the high starting point allowed four of the six Greek banks to remain above the 6 percent benchmark, and one bank to be at the 6 percent benchmark.
 
Underlying the Greek banks’ performance are the significant capital increases that took place in 2009. This enhancement was mainly a result of the increase in supervisory own funds. The main factors that contributed to the increase in supervisory own capital were: the capital raised by several banks from the market, internal financing through retained earnings as no dividends were distributed in 2009, as well as the issuance of preference shares.

The Bank of Greece will closely monitor developments and will ensure that necessary steps are taken to increase the capital adequacy of banks, where needed. In any case, the establishment of a €10 billion Hellenic Financial Stability Fund, in the context of the Greek economy’s support program, provides a safety net for banks’ capital adequacy. In addition, €1.2 billion is available through the issuance of preference shares (Law 3723/2008).

The detailed results for each bank are available on the banks’ websites.

More information on the scenarios, methodology, aggregate and detailed individual results is available on EBA's website (http://www.eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing/2011).