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BFA-Bankia passes the European stress test

Bankia has passed the stress tests conducted by the European Banking Authority (EBA), which were carried out across 91 banks covering over 65% of the EU banking system. In a maximum stress scenario the bank has obtained a 5.4% Core Tier 1 Capital ratio, compared to the 5% minimum requirement.
Bankia Comunicación

By  Bankia Comunicación

Publish on 
15 July 2011

  • According to current regulations, BFA-Bankia obtains a 5.4% capital ratio, which would increase to a 6.5% Core Tier 1 Capital if provisions to cover losses were included.
  • These ratios confirm that BFA-Bankia has excess capital which can be used to deal with any adverse scenario.

Bankia has passed the stress tests conducted by the European Banking Authority (EBA), which were carried out across 91 banks covering over 65% of the EU banking system. In a maximum stress scenario the bank has obtained a 5.4% Core Tier 1 Capital ratio, compared to the 5% minimum requirement. Including the generic and substandard provisions, which amount to more than €4.2bn, BFA-Bankia would obtain a higher capital ratio of 6.5%.

These figures confirm that BFA-Bankia has sufficient excess capital to face extreme shock scenarios as well as prove to its clients, creditors and counterparts that, in a case of sharp recession, the bank would be able to meet its obligations as it has done to date.

The Europe wide stress test results include an assumed share offer of €3bn in BFA-Bankia’s Initial Public Offering. This is at the lower range of the capital to be raised which is between €3.636bn and €4.164bn.

BFA-Bankia considers these results to be “satisfactory as they highlight the group’s resilience and ability to cope with adverse and unlikely scenarios without endangering its solvency”. Additionally, the entity estimates that the “accumulated volumes of generic and substandard provisions counting towards the balance serves as a guarantee against unexpected losses and strengthen its balance sheet”. Including these provisions, the group’s Core Tier 1 Capital ratio would reach 6.5% in a stress scenario.

Additionally, BFA-Bankia could further reinforce the structure of its balance sheet due to the synergies obtained from the integration process and the expected improvement in its credit rating following the start of trading on the stock market.

The entity considers that this result must be understood in the context of an integration process involving seven savings banks, resulting in the creation of BFA last December, whose main objective is to reinforce the group’s solvency.

As a consequence the group has adopted certain measures in the last few months that influence the test results. Such measures are the extraordinary write-downs with an impact against reserves of €6,419 million in equity in December 2010; the segregation of assets between BFA and Bankia which considerably improved Bankia’s risk profile and the IPO which is set to a capital raising of between €3,636 million and €4,164 million. This is more than the €3bn, counting towards the stress test results.

In this sense, Bankia considers it necessary that the EBA methodology includes the "collective provisions". Its impact is not clear, forcing them to be segregated in order to cover possible additional capital needs and placing them in the last chapter of additional mitigation measures. However, the provisions are real and are designed to be the first line of coverage for losses from credit risk, so this method ends by reversing the natural order of precedence between provisions and capital.

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