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RBS adding £2bn to its balance sheet after spectacular stress test failure

By Holly Williams

Published 01/12/2016

Plan: RBS Chief Financial Officer Ewen Stevenson
Plan: RBS Chief Financial Officer Ewen Stevenson

Ulster Bank parent Royal Bank of Scotland (RBS) will have to raise around £2bn to boost its financial strength after failing the Bank of England's (BoE) annual health check of the sector.

The lender, which is 73% owned by the taxpayer, emerged as the worst performer in the stress test and has drawn up a plan overnight to bolster its resilience in case of a financial crisis.

Barclays and Asian-focused player Standard Chartered also struggled in the test, but the BoE said their existing plans mean that they do not have to take further action.

The BoE's most severe annual stress test so far gauged the resilience of seven UK lending giants - RBS, Lloyds Banking Group, HSBC, Barclays, Santander, Standard Chartered and Nationwide Building Society - against a global economic crisis and crashing house prices.

The BoE's financial policy committee said that in light of the findings and action taken by RBS, "the banking system is in aggregate capitalised to support the real economy in a severe, broad and synchronised stress scenario".

RBS said it planned to boost its balance sheet by taking actions including further asset sales and cost-cutting, although it is not set to tap markets for extra finance.

Ewen Stevenson, chief financial officer of RBS, added: "We are committed to creating a stronger, simpler, safer bank for our customers and shareholders.

"We have taken further important steps in 2016 to enhance our capital strength, but we recognise that we have more to do to restore the bank's stress resilience including resolving outstanding legacy issues."

RBS came close to failing last year, while a stress test by the European Banking Authority during the summer revealed that the lender would be the third worst hit in a new economic crisis.

Results of the BoE's annual test came as it published its Financial Stability Report, which warned that the outlook "remains challenging" for the UK.

RBS shares fell 2% after the test results, while Standard Chartered also slipped into the red.

But Barclays shares held firm despite balance sheet weaknesses being revealed, with HSBC and Lloyds also edging higher in the FTSE 100 Index as they were given a clean bill of health.

BoE governor Mark Carney said that after plans were put in place by RBS, Barclays and Standard Chartered to address weaknesses, banks would be able to "withstand a severe shock".

Earlier this year Ulster Bank announced the sale of an impaired loan portfolio across Ireland with a face value of €2.5bn (£2bn) to vulture fund Cerberus.

Just 12% - or around €300m (£255m) - of the loans related to borrowings in Northern Ireland, though none related to residential mortgages on this side of the border. Around 1% of the all-island loans involved farmers and other agri-business.

It was the latest of a number of loan sale by the bank in recent years. It announced the sale of other Northern Ireland loans worth £1.4bn to Cerberus for £205m last year while loans were sold under Project Achill in 2014.

Belfast Telegraph

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