Stress test shows top 8 UK banks have enough capital, says Bank of England

LONDON (Reuters) – The Bank of England said on Wednesday its annual stress test of eight major lenders showed that each could cope with rising interest rates in a stressed environment, and none would need to submit a revised capital plan.

The test checked if banks were holding enough capital to cope with theoretical shocks under a scenario which the BoE said was more severe than the global financial crisis of 2008 when British taxpayers had to bail out several lenders.

The test also measured how well the lenders would cope with a global rise in interest rates.

The eight banks account for 75% of lending in Britain.

“The results of the 2022/23 annual cyclical scenario (ACS) stress test show that the major UK banks are resilient to a severe stress scenario that incorporates persistently higher advanced economy inflation, increasing global interest rates, deep simultaneous recessions with materially higher unemployment in the UK and global economies, and sharp falls in asset prices,” the BoE said in a statement.

There was no common pass mark but each bank had to scale a bespoke hurdle, with Barclays (LON:), Lloyds (LON:), HSBC, NatWest, Santander (BME:) UK, Standard Chartered (OTC:), Nationwide Building Society and Virgin Money (LON:) all showing no capital inadequacies, the BoE said.

The Bank said it has decided to maintain its counter-cyclical capital buffer (CCyB) for banks unchanged.

“In the current context of its overall capital strategy, the FPC judges that the neutral rate for the UK CCyB is around 2%,” the Boe said.

Virgin Money said that given its successful completion of the stress test, it anticipated resuming its share buyback programme during this year.

NatWest, Britain’s biggest lender to small businesses, said the test highlighted the group’s “all weather” balance sheet.

Lloyds, Nationwide and Standard Chartered also noted their successful performance in the test.