2018 stress tests
After a one-year break, the European Banking Authority (EBA) once again conducted an EU-wide stress test of banks in 2018, in conjunction with the European Systemic Risk Board (ESRB), the European Central Bank (ECB) and the Single Supervisory Mechanism (SSM).
The objective of the EU-wide stress test is to provide supervisors, banks and other market participants with a common analytical framework for the appropriate comparison and assessment of the resilience of European banks and the European banking system to adverse market conditions. The results of this year’s stress tests include the impact of the banks’ changeover to the application of IFRS 9 on 1 January 2018. No pass/fail threshold measured by the total capital ratio was stipulated for this year’s stress tests. The results of the stress tests are however taken into account as one of the inputs within the framework of the supervisory review and evaluation process at a bank, which is conducted each year by the competent supervisors.
The exercise included the 48 largest systemically important banks (accounting for 70% of the EU banking system), 33 of which come under direct supervision in the SSM. Their small size means that Slovenian banks were not included in the EBA stress tests (the threshold for inclusion was total assets of at least EUR 30 billion). The EBA’s stress test exercise began in late January, and the banks submitted the results of the stress tests in several consecutive iterations between the end of May and October. After a quality review process, the results of the stress tests, including banks’ individual results, were published on the EBA website on 2 November 2018.
More information on the scenarios, the methodology, forms and the sample of participating banks can be found online: https://www.eba.europa.eu/-/eba-launches-2018-eu-wide-stress-test-exercise.
The competent supervisor carries out the supervisory review and evaluation process (SREP) each year, of which the stress tests are an important element. In consequence, the SSM will:
- include the results of the EBA stress tests in the SREP for significant institutions included in those stress tests; and
- conduct its own stress tests for significant institutions not included in the EBA stress tests.
Slovenia’s significant institutions (NLB, NKBM and Abanka) are included in the stress tests under the aegis of the SSM. With the aim of ensuring the equal treatment of all significant institutions within the SSM (as part of or outside the sample of EBA stress tests), the banks included in the SSM stress tests followed the EBA methodology in full. The results of the SSM stress tests will not be made public.
In accordance with established practice from previous years, the Bank of Slovenia also conducted stress tests for the remaining banks for which it has direct responsibility (less significant banks, savings banks, SID banka and subsidiary banks under majority foreign ownership). When conducting the stress tests, the Bank of Slovenia took account of the size and complexity of Slovenian banks, and accordingly simplified the EBA methodology and forms. In accordance with SSM practice, the result of the stress tests of less significant institutions in Slovenia will not be published.
The 2018 stress tests showed that the quality of the stress tests conducted by Slovenian banks is slowly improving, but that there are still areas where improvements are possible in the future. The Bank of Slovenia will therefore continue encouraging banks to better understand the process, the methodology and the reporting requirements of the stress tests, to provide for the requisite human and technological resources, and to develop their own models and forecasts.