Italy’s BMPS worst performer in EU banking stress tests

London (AFP) – Italy’s Banca Monte dei Paschi di Siena came a distant last in EU bank stress test results released on Friday that showed the sector as a whole was broadly resilient.

BMPS would suffer a 14.23 percent plunge in its core capital ratio — a key measure of a bank’s financial stability — by 2018 under an economic shock scenario being modelled by the European Banking Authority.

That would bring the ratio for BMPS, the world’s oldest bank, down to minus 2.23 percent — the only one of the 51 banks tested to end up in negative territory.

The announcement came shortly after the bank’s board announced a plan for shifting the bad loans that have weighed down on the lender, which was founded in 1472.

“The EBA’s 2016 stress test shows the benefits of the capital strengthening done so far are reflected in the resilience of the EU banking sector to a severe shock,” said Andrea Enria, chair of the London-based watchdog.

But he added: “This is not a clean bill of health”.

The second worst performer in the EBA tests — Allied Irish Banks — would see a ratio fall of 8.47 percent.

Deutsche Bank, Germany’s top lender, would fall by 5.4 percent and Royal Bank of Scotland by 7.46 percent.

But the sector on average would remain above EU legal minimum levels in case of the shock being tested — an EU economic contraction of 1.2 percent in 2016 and 1.3 percent in 2017 followed by 0.7-percent growth in 2018.

The banks tested account for 70 percent of the sector.

They showed an average core capital ratio of 13.2 percent at the end of 2015. Under the adverse economic scenario this would fall to 9.4 percent by the end of 2018.

A European Banking Authority source said the shock scenario remained valid even under the worst-case predictions of the economic impact of Britain’s vote to leave the European Union in a referendum last month.