EU Stress Test Results

August 2016

© 2016 Deloitte Conseil 2

51 banks from 15 countries which represent €10 291b of risk exposure

Key Results Key comments

CET1 levels have increased in all European countries in comparison with 2014 exercise

The results shows that the European banking system seems to have a better capacity to absorb credit losses which is positive in a context of increasing regulatory expectations on banks profitability

Supervisors will now assess potential impact on each bank and decide on the appropriate response as part of the SREP

Results need careful interpretation in order to fully understand the implications, including the significance of the static balance sheet assumption and other modelling assumptions

Challenges around qualitative aspects of the exercise – such as data quality and governance – have come to the fore in running the tests. EBA has refrained from challenging banks publicly, but further scrutiny may well come from supervisors during the SREP

Supervisory action could include dividend restrictions, capital guidance, or requests to remediate problems

Next EBA EU-wide exercise expected in 2018. Banks directly-supervised by the ECB may be subject to some form of exercise next year

Weighted average transitional CET1 capital ratio under adverse scenario shows the continued capital strengthening of EU banks

2 417 2 370

1 445

1 179

890764

342196 188 157 122 110 45 44 22

FR UK ES DE IT NL SE DK AT BE IE NO FI PL HU

Sum risk exposure in €b

9,4%

-370bpsCredit risk is the main driver of CET1 reduction under averse scenario

-110bpsThe new significant impact of this exercise is Business Conduct and Operational Risk

0 1 2 3 4 5 6 7 8 9 10

DE

FR

ES

IT

UK

NL

SE

DK

AT

BE

IE

NO

FI

PL

HU Nb Banks

CET 1 ratio (1/2)

© 2016 Deloitte Conseil 3

-5,00% 0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00% 40,00% 45,00%

NRW

Swedbank

Svenska Handelsbanken

N.V. Bank

Skandinaviska Enskilda Banken

OP Osuuskunta

DNB Bank

Nordea Bank

Danske Bank

Jyske Bank

Nykredit Realkredit

Crédit Mutuel

PKO Bank

Belfius

KBC

Crédit Agricole

Intesa

Lloyds

Landesbank Hessen-Thüringen

La Banque Postale

BFA Tenedora de Acciones

VW Financial Services

ABN AMRO

DekaBank Deutsche

BPCE

Landesbank Baden-Württemberg

OTP Bank Nyrt.

Banco Popolare

ING

UBO

HSBC

Norddeutsche Landesbank

BNP Paribas

Bayerische Landesbank

Banco Santander

BBVA

CC Raiffeisen-Boerenleenbank

RBS

Banco de Sabadell

Erste

Criteria Caixa

Deutsche Bank

Société Générale

Commerzbank

Barclays

UniCredit

Banco Popular Español

Bank of Ireland

Raiffeisen-Landesbanken

AIB

BPMS

Fully loaded CET1 ratio - %

Adv. Dec 2018 31/12/2015

Key comments

• CET1 levels have increased in all Europeancountries in comparison with 2014 exercise.

• 49 banks are above 5,5% of CTE1 understress test scenario.

• BPMS has a negative CTE1 under stress testscenario (impact of - 1400 bps).

• The Irish banks and RBS are significantlyimpacted under the adverse scenario with adecrease of their respective CET 1 ratiosbetween 35% and 50%. This may indicatethat these banks are still in the process ofde-risking their balance sheets.

• The ratios of Deutsche Bank andCommerzbank decrease by 30% in line withthe sample (-25%, excluding BPMS).

• The reduction is around 40% for ABN Amro.The bank is below 3% for leverage ratio withadverse scenario.

• The impact on the remaining banks remainsfairly mild as expected (between 250 bps –400 bps).

• The largest banks also remained above theirdisclosed Pillar 2 capital requirements,however some would have breached thefully implemented CRDIV buffers (CCB,GSIB) by 2018 in the Adverse scenario –notwithstanding that result could have beenfurther mitigated by management actionsnot considered in the exercise.

Key figures

CET 1 ratio (2/2) – main impacts

© 2016 Deloitte Conseil 4

-12,00%

-7,00%

-2,00%

3,00%

8,00%

13,00% Change in CET1 by bank

P&L before tax from continuing operations before credit risk and market risk lossesCredit RiskMarket RiskDividends paidTransitional ArrangementsTotal REAOther

Key figures

Key comments

• For EU, the credit risk is by far the most significant impact (-3,71%). The impact is -10,85% for BPMS.

• UK & Irish banks, like most of Europe, are materially impacted by credit risk losses driven by the adverse scenario, withsome off set from income generated.

• For French banks, the credit risk impact is -2,48% with low mitigation effect from P&L (+1,31%, below UE average).

• For Spanish banks, the credit risk impact is -5,67% with strong P&L mitigation effect.

• German banks don’t have the full P&L mitigation effect following the application of cap rules on NII.

Risk exposures (1/2)

© 2016 Deloitte Conseil 5

90,0

95,0

100,0

105,0

110,0

115,0

120,0

125,0

130,0

135,0

Total risk exposure amountbase 100 = 31/12/2015

31/12/2015 Adv. Dec 2018

Key figures

Key comments

• For the bank sample, the increase of REA in widely explained by Credit Risk (80% of change).• The relatively low increase of the total REA under the adverse scenario for Irish banks may be due to the fact that the

Irish economy is still in recovery.

• The multiples for UK banks (between 1.1 and 1.5) indicate that the impact is fairly mild as expected, except for onewhich seems to still hold assets with significant risk under stress conditions.

• For French banks, increase in REA is explained by 90% with credit risk.

Risk exposure (2/2) – Focus on Credit Risk

© 2016 Deloitte Conseil 6

90,0

95,0

100,0

105,0

110,0

115,0

120,0

125,0

130,0

135,0

140,0

Risk exposure amount for credit risk, base 100 = 31/12/2015

31/12/2015 Adv. Dec 2018

Key figures

Key comments

• Risk exposure amount (REA) impacts of the adverse scenario for credit risk are heterogeneous across the 51 banks. The most important gaps are observed for Nykredit (Denmark), La Banque Postale (France) and ABN AMRO (Netherlands). High

level of gaps could be explained by:High level of Corporates involving rating migrations approaches with higher level of variations of PDs and the collateral effect on LGDs,

Standard approach implies more approximate methodologies to apply the impact of the adverse scenario, notably for mortgage portfolio. Null impact is published for some banks such as OTP (Hungary) and PKO (Poland) (end-2015 level of REA serves as a floor for the

total REA). These banks are in Standard approach, with therefore less methodological possibilities for credit risk calculations.• The heterogeneity of impacts can be explained by the different methodological hypothesis, the various mix of portfolio and countriesand by the level of maturity in terms of implementation of Basel 3 approaches (the consideration of the roll out or modification ofinternal model was not allowed during the stress horizon). The effect of the macroeconomic scenario seems more limited except forthe impact of house and CRE prices.

P&L

© 2016 Deloitte Conseil 7

Key comments Key figures

in m€

CountryCumulated Baseline

Impairment

Cumulated Adverse

ImpairmentChange in %

Austria -4 786 -8 787 84%

Belgium -1 434 -3 134 119%

Denmark -3 644 -7 927 118%

Finland -285 -798 180%

France -30 774 -56 612 84%

Germany -14 343 -22 187 55%

Hungary -904 -1 713 90%

Ireland -2 321 -7 441 221%

Italy -25 817 -49 165 90%

Netherlands -9 273 -21 748 135%

Norway -1 008 -2 514 150%

Poland -1 029 -2 701 162%

Spain -47 285 -81 620 73%

Sweden -3 624 -8 393 132%

United Kingdom -38 546 -74 014 92%

Total -185 072 -348 756 88%

Given the current bank results (ex : 30 June2016), the low level of interest rate putpressure on bank profitability.

In the adverse scenario, there is an increaseof interest rates with limited credit spreadimpact. In this context and given the EBAmethodology, the main driver of NII decreaseis the non-performing book impacts(estimated part : 2/3).

In the EBA exercise, the net fee andcommission income remains quite steady. Thedecrease is 11% on average.

There were high degree of discussion aroundthe impact of EBA methodology for projectedfees (based on balance sheet size)

The impairment is clearly the strong effect.Ireland (high NPL ratio), Poland, Norway (nocollateral) and Finland recorded relativelythe most important impact in the adversescenario.

France, Germany and Spain remained lesssensitives to change in economic scenarios.The most probable reason is thecombination of low NPL ratio and collateralimpact.

LGD are not released by EBA.

65% 65%

76%

47% 47%46…

82%

75%

50%

73% 73%67% 68%

59% 59%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

50,00

60,00

70,00

80,00

90,00

100,00

110,00

Net Interest Income Adverse Scenario Base 100, actuals 31/12/2015

31/12/2016 31/12/2017 31/12/2018 NII/Operating income

29% 28%

21% 27%

33% 31% 32%

14%

37%

16%9%

27%22%

29%25%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50,00

60,00

70,00

80,00

90,00

100,00

110,00

Net fee and commission incomeBase 100, actuals 31/12/2015

31/12/2016 31/12/2017 31/12/2018 Net fees /Operating income

P&L

© 2016 Deloitte Conseil 8

Key comments Key figures

• The estimated impact of business conductrisk and operational risk seems to bedriven by historical penalties (UK, Franceand Netherlands).

Note : For our analysis we have assumed thatmost banks will have been subject to thefloors and caps for other income andadministrative expenses, therefore the maindriver of the difference between base andadverse scenario will be the impact ofOperational & Conduct Risk

• Market risk losses as a % of exposure werec11% in the UK, the lower end of the rangeacross EU countries, with France peakingat 22%.

• For materially impacted countries such asFrance, Germany and the UK, despite thebase to adverse impact, the cumulativeP&L remains positive, driving a benefit toCET1. Therefore the depletion in capitalassociated with market risk is driventhrough the impact of the market shock onAFS/Sovereign holdings.

Gains or (-) losses on financial assets and liabilities held for trading, net

CountryCumulated Baseline

P&L

Cumulated Adverse

P&LDiff

Market Risk

exposure

Austria 253 -914 -1 167 7 519

Belgium 603 -528 -1 131 8 933

Denmark -893 -2 464 -1 571 17 676

Finland 219 -86 -305 1 840

France 29 572 9 364 -20 208 89 892

Germany 17 025 2 283 -14 742 115 825

Hungary 80 -49 -129 1 471

Ireland 27 -434 -462 2 489

Italy 2 730 -265 -2 996 40 519

Netherlands 3 409 -1 561 -4 970 26 364

Norway 285 -249 -534 2 206

Poland 187 -43 -230 1 513

Spain 3 605 -3 502 -7 107 55 879

Sweden 5 544 2 549 -2 995 17 814

United Kingdom 30 059 14 712 -15 347 143 892

Total 92 705 18 812 -73 892 533 831

Other income and expenses not listed above, net - No operating income

CountryCumulated Baseline

P&L

Cumulated Adverse

P&LDiff

Operational Risk

exposure

Austria -13 561 -13 895 -334 20 282

Belgium -13 561 -13 895 -334 13 081

Denmark -12 961 -14 184 -1 223 14 464

Finland -3 310 -3 510 -199 3 477

France -285 501 -293 687 -8 186 213 712

Germany -135 698 -139 148 -3 450 139 509

Hungary -4 435 -4 511 -77 2 739

Ireland -9 712 -10 430 -718 7 912

Italy -100 654 -104 033 -3 379 78 468

Netherlands -66 576 -72 027 -5 450 84 637

Norway -5 196 -5 359 -162 8 776

Poland -4 159 -4 243 -83 1 942

Spain -128 684 -129 065 -380 123 137

Sweden -31 674 -32 227 -553 35 465

United Kingdom -249 927 -286 724 -36 797 261 797

Total -1 065 612 -1 126 938 -61 326 1 009 398

Vos contacts Stress Tests

Frédéric Bujoc

Associé

+33 (0) 1 55 61 23 83fbujoc@deloitte.fr

Nadège Grennepois

Directrice

+33 (0) 1 55 61 62 28ngrennepois@deloitte.fr

Jean-Baptiste Olivier

Senior Manager

+33 (0) 1 40 88 75 81jolivier@deloitte.fr

Mohamed Benlaribi

Associé

+33 (0) 1 55 61 41 58mbenlaribi@deloitte.fr

© 2016 Deloitte Conseil 13

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