Commenting on the Bank of England's stress test results today:
Michael Snapes, financial services director at PwC, said:
“The Bank of England’s annual stress test – now into its fourth year – continues to provide a valuable temperature test on the resilience of the major UK banks. As Brexit uncertainty persists and UK growth projections are adjusted downwards, there is some comfort to be had in the knowledge that the UK banking system is strong enough to withstand a severe economic deterioration. Indeed, with an end seemingly in sight for legacy conduct costs and restructuring programmes typically well advanced, the results suggest that the major UK banks may finally be emerging fully from their post-crisis downturn.
“However, as expected the detailed results of an ‘exploratory scenario’ – examining competitive pressures – and the 'IFRS 9' financial instruments trial run were not published. The former has the potential to eat away at the major UK banks’ dominance, particularly with the introduction of Open Banking from early next year. The latter could significantly increase the sensitivity of banks’ balance sheets to a stress scenario due to earlier recognition of loan impairment charges. Both are likely to provide challenges for participating banks during next year’s stress test."
Isabelle Jenkins, banking and capital markets leader at PwC, added:
“With £67bn of debt- and rising- held on UK credit cards, the forecasting exercise is a useful test run. However, this is just the tip of the iceberg.
“Banks have a real challenge looming in 2018 when they will need to include the ‘stressed’ IFRS 9 projections in their internal capital assessments, regulatory submissions and ad-hoc stress testing.
“In short there will be more scenarios to cater for, more complex modelling and more detailed data requirements.”
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