The Committee of European Banking Supervisors (CEBS) released the results of the EU-wide bank stress test involving 91 banks this evening. The RZB Group clearly passed this test and in doing so made clear that it would be adequately capitalized even under the assumption that a further macroeconomic crisis lasting two years occurs. In addition to the RZB Group, the stress test also involved Austria’s Erste Group; Bank Austria was tested in Italy due to its status as a UniCredit subsidiary.
The stress test’s principal focus was placed on the tier 1 ratio (total risk), which is a key indicator of an institution’s risk-bearing capacity. Even under the simulated crisis scenarios, RZB would post a tier 1 ratio (total risk) of 7.8 per cent; this value would be 1.5 percentage points below the comparable value the bank posted at the end of 2009 (9.3 per cent, according to CEBS’ method of calculation). This value places RZB well above the minimum of 6 per cent recommended by CEBS in the stress test, as well as the statutory minimum of 4 per cent.
The stress test involved a benchmark scenario and two crisis scenarios that CEBS had defined. The measures that Austria’s central bank (OeNB) applied for the Austrian banks participating in the stress test were more stringent than those defined by CEBS; this was done to more accurately reflect the Austrian banks’ risk exposure to Central and Eastern Europe. The benchmark scenario assumes that the EU-27 will register economic growth of 1.0 per cent in 2010 and 1.7 percent in 2011. The "adverse scenario" assumes that the economy stagnates in 2010 and declines by 0.4 per cent in 2011. In doing so, the adverse scenario postulates that the economic growth over the two-year period would be around three percentage points lower than in the benchmark scenario. All calculations are based on a "zero growth" assumption, according to which business would only continue at existing levels. For the RZB Group, this scenario would lead the bank’s tier 1 ratio (total risk) to decline to 7.9 per cent. In a second stress scenario ("Additional Sovereign Shock"), the impact of potential losses in sovereign bonds was also taken into account. This scenario would lead RZB’s tier 1 ratio (total risk) to come in at the previously mentioned level of 7.8 per cent.
"RZB has clearly passed the test. Even in a scenario that assumes an extended economic crisis, our capitalization would remain far above the minimum ratio of 6 per cent recommended by CEBS," said Johann Strobl, the RZB managing board member responsible for risk issues.
Stress tests are always only insights on the status at a specific moment in time and thus cannot take into account the countermeasures that the management of a bank would logically implement in the event of a real crisis situation. For example, in 2008 and 2009 RZB conducted a comprehensive analysis of its portfolio and made reductions wherever it was necessary and sensible to do so. In addition, RZB optimized the composition of its loan portfolio and further raised the group's overall efficiency. It is also worth noting that the CEBS stress test did not take into consideration any trading profits. Given this approach, the stress tests provide a valid and standardized instrument with which to analyze how an institution could develop under crisis conditions. However, the tests do not provide a preview of what the actual developments would be, even in the event that the assumed conditions were to come to pass.
"In principle, the scenarios applied in the stress tests resemble a vehicle crash test in which the car is driven head-on into a wall without using the brakes or making any evasive maneuvers. The goal was to find out whether the passenger compartment would remain intact and the passengers would be protected under such difficult conditions. Even under these very drastic assumptions, RZB would remain roadworthy. Of course, in the real world, we would first apply the brakes and then countersteering in order to preemptively avoid any damage from occurring," said Strobl.
As the panel of European banking supervisors, CEBS coordinated the stress test in cooperation with the European Central Bank, Austria's Financial Market Authority (FMA), and the Austrian central bank (OeNB). OeNB director Andreas Ittner and FMA managing board member Helmut Ettl represent Austria in CEBS, which is headquartered in London. The CEBS stress test complements the RZB Group's regularly-implemented management processes and stress test programs, which are based on Basel II stipulations and the EU's Capital Requirements Directive.
Please find attached the following documents from CEBS:
Raiffeisen Zentralbank Österreich AG (RZB) is the central institution of the Austrian Raiffeisen Banking Group, the country’s largest banking group. It is a leading corporate and investment bank in Austria and also considers Central and Eastern Europe (CEE) as its home market. RZB is the only Austrian bank with a global network of business units reaching all important finance centres around the globe. It is also present in Asia with branches and representative offices in nine locations.
Via listed subsidiary Raiffeisen International Bank-Holding AG, RZB operates one of the largest banking networks in CEE, covering 17 markets across the region through subsidiary banks, leasing companies and a range of other financial service providers. The group’s 56,000 employees service more than 15 million customers through around 3,000 business outlets.
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