According to the latest stress test, Europe’s banks are still well prepared for a potentially serious economic crisis. Although the financial groups would lose 271 billion euros in capital buffers within three years in the assumed scenario, they could still support the economy even in such a serious economic crisis. This was announced by the European Banking Authority (EBA) on Friday evening as a result of the 2023 stress test. In doing so, she had simulated a crisis scenario that was as severe as never before for the institutes.
Deutsche Bank and Commerzbank fared better in the stress test than they did two years ago. DZ Bank, on the other hand, was hit much harder.
In the stress test, the EBA had specified an intensification of geopolitical tensions, accompanied by a resurgence of the corona pandemic. The consequences would be a slump in the economy, growing unemployment, high inflation and a collapse in the stock markets.
In the event of a crisis, the core Tier 1 capital ratio would fall from 15 percent at the end of 2022 to 10.4 percent at the end of 2025, it said. The economic slump assumed in the current test was the strongest so far, it said. In the scenario, the economic output (GDP) of the EU countries will drop by a total of six percent in the years 2023 to 2025. The unemployment rate is up about 6 percentage points and the inflation rate is up to 3 percentage points higher than it would otherwise have been.
In the event of the simulated economic slump coupled with various other stress factors, Deutsche Bank’s core Tier 1 capital ratio would fall from just under 13.4 percent at the end of 2022 to just under 8.1 percent at the end of 2025, as the EBA announced on Friday evening with the results of the latest bank stress test. In the previous test, the ratio of core Tier 1 capital – a buffer for times of crisis – was even stronger within three years and dropped to around 7.4 percent.
Commerzbank got off even lighter this time. In the simulated crisis with an economic downturn, rising unemployment and higher inflation, their common equity tier 1 ratio fell from around 14.1 percent at the end of 2022 to around 9.5 percent at the end of 2025. In the previous stress test in 2021, Commerzbank’s core capital ratio shrank from 13.2 to 8.2 percent.
Leading representatives of both banks pointed out that the stress test scenario was tougher this time.
Things went much worse this time for DZ Bank, the leading cooperative institute. In the current stress test, your hard core capital ratio fell from 13.5 to 7.0 percent. In the previous test, the institute was significantly better at 10.2 percent in the event of a crisis. DZ Bank pointed out that it would have done better under the new IFRS 17 accounting standard, which has been in force for it since 2023. Then their hard core capital ratio would have shrunk from 15.1 to 9.0 percent. From the bank’s point of view, the results confirm the “good capital situation of the DZ Bank Group”.
The fact that the banks are still doing better overall in terms of the core capital ratio than in the previous test from 2021 is explained by the EBA with the higher profits of the institutions and a higher quality of the assets at the beginning of the test in early 2023.
