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Banking Updated: 02 Nov 2018

EBA stress test: BBVA sees lower capital impact and generates profit under adverse scenario

BBVA has once again excelled in EU-wide bank stress tests thanks to its resilience in the face of potential economic shocks. According to the exercise results, published today, BBVA would reach a fully loaded CET1 capital ratio of 8.80 percent in 2020 under the adverse scenario. The bank would also have the second least negative impact among its peers between the initial ratio in 2017 and the final ratio in 2020 (1.93 percentage points). Among big European banks  assessed, BBVA is one of the few banks with the ability to generate an accumulated profit in the three-year period under analysis (2018, 2019, and 2020), under the adverse scenario.

Resultados BBVA LA VELA

The EBA EU-wide exercise uses 2017 year-end data from each financial institution to assess their resilience in two macroeconomic scenarios - a baseline and an adverse scenario. The test uses a static balance sheet and looks at how capital ratios, earnings, and other relevant metrics would perform over a three-year period (2018, 2019, and 2020).

Using a common methodology, the results of the stress test enable supervisory authorities to assess each bank’s capacity to reach minimum capital requirements during an economic crisis. The results of the test are not to be considered as earnings estimates.

This is the first year that the impact of the new accounting standard IFRS9 was incorporated into the test, which in addition to requiring an adjustment in the 2017 year-end initial capital ratio, involves using an expected loss model to calculate bad debt provisions. As a result, the largest impact in the stress test is reflected in the first year (2018).

Similar to the 2014 and 2016 stress tests, this test does not include a pass/fail threshold. The results of the exercise will be incorporated in the Supervisory Review and Evaluation Process (SREP), periodically conducted by the European Central Bank (ECB) for the institutions, which determines the capital requirements for each bank.

“The results published by the EBA today once again show BBVA’s solid capital position, which is reflected in its capital resilience in the most adverse scenarios, thanks to its ability to generate recurring revenues,” BBVA Head of Global Supervisory Relations Eduardo Ávila said.

The initial fully loaded CET ratio as of December 31, 2017 has been restated to factor in a 31-basis-point impact coming out of the new IFRS9 accounting rule. As a result, BBVA has an initial restated ratio of 10.73 percent, compared to the 11.04 percent originally reported.

In the adverse scenario, BBVA would reach a fully loaded CET1 capital ratio of 8.80 percent in 2020. This makes BBVA Group the bank with the second lowest negative impact between the initial and the final ratios of all European peer group (1.93 percentage points vs. 4.34 p.p. of average for its peers, not including BBVA). The test results do not factor in the impact of the sale of BBVA’s stake in BBVA Chile -an operation announced at the end of 2017 and completed on June 6, 2018-, which would add 50 basis points to its fully-loaded CET1 capital ratio.

In the baseline scenario, the fully loaded CET1 ratio for BBVA increases 1.99 percentage points to 12.72 percent, as of December 31, 2020.

In the adverse scenario, BBVA would also be one of two of its European peer group banks to post an accumulated profit between 2018 and 2020: It would earn €344 million.

The 2018 EU-wide stress test exercise is the sixth carried out by the European Banking Authority (EBA) since 2009. A total of 48 banks with assets worth more than €30 billion each participated in the exercise. The analysis covers 70 percent of the banking sector’s assets in the EU. Four Spanish banks were included: BBVA, Santander, CaixaBank, and Sabadell.