RBS in new capital plan after stress test shortfall

RBS chief financial officer Ewen Stevenson

Royal Bank of Scotland said it agreed a revised capital plan with the UK’s Prudential Regulation Authority (PRA) to address the shortfall identified by the Bank of England’s 2016 stress testing process.

But RBS added that “additional management actions may be required until RBS’s balance sheet is sufficiently resilient to stressed scenarios.”

The stress test applied a hypothetical adverse scenario to the RBS balance sheet as at December 31, 2015.

RBS said: “The bank has taken a number of actions since 31 December 2015 to improve its capital position stress resilience …”

RBS said these actions included “the on-going run-down of Capital Resolution (risk-weighted assets reduced by £10.4 billion to £38.6 billion in the first nine months of 2016), the continued reduction in higher risk credit portfolios, the settlement of various litigation cases and regulatory investigations and the issuance of an additional £2 billion equivalent in Additional tier-1 securities.”

RBS Chief Financial Officer Ewen Stevenson said: “We are committed to creating a stronger, simpler and 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 said it agreed a revised capital plan with the PRA to improve its stress resilience “in light of the various challenges and uncertainties facing both the bank and the wider economy highlighted by the concurrent stress testing process.”

RBS said intends to “execute an array of capital management actions to supplement the organic capital generation from its core franchises and further improve its stress resilience, including: further decreasing the cost base of the bank; further reductions in RWAs across the bank; further run-down and sale of other non-core loan portfolios in relation to our personal and commercial franchises; reduction in certain non-core commercial portfolios in Commercial Banking; and the proactive management of undrawn facilities in 2017.”

Filippo Alloatti, senior analyst at Hermes Credit, said RBS needs to undertake further remedial action to ensure it can withstand another financial crisis.