Edinburgh-registered banking groups NatWest-RBS and Bank of Scotland parent Lloyds Banking Group said on Tuesday that they have passed the UK central bank’s stress tests for banks.
The news came as the Bank of England also announced that it will lower capital requirements related to risk-weighted assets by one percentage point to about 13%, reducing the amount banks must hold in reserve.
NatWest-RBS said: “NatWest Group notes the announcement made today by the Bank of England (BoE) regarding the results of its 2025 stress test.
“The test explores whether the group has sufficient capital to withstand a severe but plausible scenario starting with the group’s balance sheet as at 31st December 2024, and compares the theoretical Common Equity Tier 1 (CET1) ratio and Tier 1 leverage ratio positions of the group before and after the impact of strategic management actions.
“Under this scenario, the group’s low point CET1 ratio would have been 11.1% (December 2024 actual: 13.6%), and the group’s low point Tier 1 leverage ratio would have been 4.7% (December 2024 actual: 5.0%), both significantly ahead of the stress minimum requirement, and sufficient to ensure that no strategic management actions would be required.:
NatWest Group chief financial officer Katie Murray said: “This exercise has highlighted again the strength of NatWest Group’s balance sheet, delivering sustainable value creation and strong distributions for shareholders.
“The results also reflect the continued strengthening of our balance sheet since the 2022/23 Stress Test, underpinning our ability to support our customers and the broader economy, including under a severe stress scenario.”
Lloyds Banking Group said: “The group is pleased to note that it has comfortably passed the stress test and given this strong performance, the group is not required to take any capital actions.
“The BoE calculated the group’s stressed CET1 ratio after the application of management actions as 10.9% and its stressed leverage ratio as 4.6%. Despite the severity of the stress test scenario, and without the conversion of the group’s AT1 securities into equity, the group significantly exceeded the capital and leverage minimum requirements of 5.9% and 3.3% respectively.
“The 2025 BCST (Bank Capital Stress Test) scenario was designed to test the resilience of the UK banking system under a severe global aggregate supply shock, which leads to deep recessions across the world and escalation of geopolitical tensions.
“The BoE stated at the outset of the exercise that the focus of this hypothetical scenario was to ensure that banks were able to absorb rather than amplify shocks and continue to lend to UK households and businesses.
“The scenario was more severe than the last global financial crisis and combined rapidly rising interest rates and unemployment, in conjunction with significant falls in property prices and GDP.
“In addition to these economic factors, and in line with previous years, the stress scenario also reflected other risks such as conduct events, alongside a traded risk scenario.
“Clearly since the date of this stress test (conducted with a balance sheet date of 31 December 2024) we have taken a significant further provision for the potential impact of Motor Finance.
“The strong performance and indeed continued strengthening of the stressed performance of the Group reflects the Group’s prudent balance sheet management and strong capital position (having reported a pro-forma CET1 ratio of 13.5% and a UK leverage ratio of 5.5%, at 31 December 2024).
“The Group continues to be strongly capital generative as highlighted in our recent Q3 results.
“Lloyds Banking Group also notes the Financial Policy Committee’s (FPC’s) capital review and will assess the implications for the Group and update as appropriate.”