BoV confident of passing EU stress test 'very comfortably'

Bank of Valletta is confident it will pass the European Union stress test for banking institutions very comfortably, chairman Roderick Chalmers told The Times yesterday.

"The stress tests are taking place right across the bank's balance sheet - the loan book and the financial markets holdings. We are entirely confident that we will emerge from these stress tests very comfortably meeting the required Tier I capital criteria," Mr Chalmers said.

Bank of Valletta is among 91 European banks listed by the Committee of the European Banking Supervisors, a group of EU national finance regulators, on Tuesday. The list, which also includes banking groups like BNP Paribas, HSBC, Deutsche Bank, Santander, UniCredit and ING, makes up 65 per cent of the European banking sector.

The CEBS criteria required each eurozone member to be included and a sample covering at least 50 per cent of the national banking sector in terms of total assets. Bank of Valletta was the only bank in Malta to fulfil the requirements.

"We carry out our own stress tests as a matter of course as part of our risk and capital management procedures, so this is not something which is foreign or new to us," Mr Chalmers emphasised. "It is being done for reasons of independence and authenticity on a top down basis by the regulators and not by the banks.

"Banks produce the data, and the regulators will carry out the stress tests according to criteria established by the European Central Bank, CEBS and the EU collectively."

Bank of Valletta is to be tested by the Central Bank of Malta, in collaboration with the Malta Financial Services Authority, to which data has already been submitted.

The stress tests aim to assess the overall resilience of the EU banking sector and the banks' ability to absorb further possible shocks on credit and market positions, including sovereign exposures, and to assess the current dependence on public support measures.

Tests are conducted on a bank-by-bank basis using macro-economic scenarios, including GDP, unemployment and consumer price index variables for this year and next year. The scenarios were developed in collaboration with the European Central Bank and the European Commission.

Selected banks' health will be gauged against adverse scenarios which assume a three percentage point deviation of GDP for the EU compared to the European Commission's forecasts over the two-year timeframe.

The results of the tests will be made public on July 23.

Mr Chalmers explained: "Malta has a different profile to other countries in terms of stress testing on its banking book as opposed to Greece, Germany, or any other country. Presumably, the criteria will be made public along with the results.

"We are very comfortable with the overall quality of our book. We continue to have a widely dispersed financial markets book of a high credit quality. Yes, Bank of Valletta was impacted by the collapse of Lehman Brothers in 2008, but in the context of the results of the bank, in the context of what happened in the financial markets between 2008 and 2009, our financial markets book stood the test of the crisis in the financial markets."

Bank of Valletta has been supplied with separate stress criteria for its loan book and for its financial markets book which will be applied to its position as at a specific date. Mr Chalmers pointed out the test is made particularly stringent by the fact that only Tier I capital - shareholders' equity - is to be applied to measure capital. The test does not take into account Tier II capital and subordinated debt.

"The ECB and the EU have stated that all banks must pass the test on a post-stress basis by emerging with at least six per cent pure Tier I capital. Our expectation is that we will exceed the criteria very comfortably," Mr Chalmers said.