Bank of Valletta passes stress test

Bank of Valletta passed a Europe-wide stress test of major banks after it was deemed to be adequately capitalised by the European Banking Authority.

Capital buffers are there to ensure business continuity, so the strength of these buffers must be maintained

The study revealed that the bank had a Core Equity Tier 1 ratio of 10.6 per cent, which is significantly above the minimum of nine per cent required by EU regulations.

The Tier 1 ratio is the most commonly used indicator to measure the adequacy of bank capital. The ratio measures shareholder capital against risk-weighted assets.

In a statement, the bank said that its capital strength was a result of the strategic priority the group gave to capital management. The bank’s CEO, Charles Borg, said the objective was to secure the sustainability of the company and the domestic financial system.

“Capital buffers are there to ensure business continuity, so the strength of these buffers must be maintained at all times,” Mr Borg said.

The bank regularly carried out internal stress tests as part of its risk management processes, he added.

Bank of Valletta is one of Malta’s two largest banks and has participated regularly in Europe-wide stress tests, passing with flying colours every time.

The European Banking Authority is tasked to supervise the European financial system and one such exercise is the banking system stress test.

The tests are intended to assess the resilience of financial institutions to adverse market developments and to contribute to the overall assessment of systemic risk in the EU financial system.

Stress tests were introduced with vigour after the collapse of the global financial system in 2008 when major banks and financial institutions were crippled by bad debts.

The collapse led to the worst recession in 80 years. Countries made up for the banks’ bad debts and this exacerbated the sovereign debt crisis with which the eurozone is still grappling.

ksansone@timesofmalta.com