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EU Banks Display Resilience Amidst 2023 Stress Test Results

As part of the recent EU-wide stress test conducted in 2023, the European Banking Authority (EBA) has released its findings, revealing that European banks have shown remarkable resilience even under an adverse scenario. This scenario encompassed a severe EU and global recession with high unemployment and substantial declines in asset prices. It also considered persistent and higher inflation, escalating interest rates, and higher credit spreads. This stress test allows supervisors to assess the resilience of EU banks over a three-year horizon (2023-2025) under both a baseline and an adverse scenario.

Main outcomes:

This resilience of EU banks reflects a solid capital position at the start of the exercise, with an average fully-loaded CET1 ratio of 15%. During the adverse stress test scenario, the capital depletion amounted to 459 basis points, leading to a fully loaded CET1 ratio of 10.4% at the end of the test. However, the impact was mitigated by higher earnings and improved asset quality observed at the beginning of 2023.

Despite facing combined losses of EUR 496 billion in the adverse scenario, EU banks maintain adequate capitalization to support the economy even during severe stress. Nevertheless, given the high level of macroeconomic uncertainty, supervisors and banks must remain vigilant and prepared for a potential deterioration of economic conditions.

The stress test involves 70 banks from 16 EU and EEA countries, covering 75% of the EU banking sector assets. The sample of the 2023 EU-wide stress has increased by 20 more banks compared to previous stress tests.

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