The European Banking Authority (EBA) today published the results of its 2023 EU-wide stress test, which involved 70 banks from 16 EU and EEA countries, covering 75% of the EU banking sector assets. This stress test allows supervisors to assess the resilience of EU banks over a three-year horizon under both a baseline and an adverse scenario. The adverse scenario is characterised by severe negative shocks to economic growth, higher unemployment combined with higher interest rates and credit spreads. In terms of GDP decline, the 2023 adverse scenario is the most severe used in the EU wide stress up to now.

The results show that European banks remain resilient under an adverse scenario which combines a severe EU and global recession, increasing interest rates and higher credit spreads. This resilience of EU banks partly reflects a solid capital position at the start of the exercise, with an average fully-loaded CET1 ratio of 15% which allows banks to withstand the capital depletion under the adverse scenario. The capital depletion under the adverse stress test scenario is 459 bps, resulting in a fully loaded CET1 ratio at the end of the scenario of 10.4%. Higher earnings and better asset quality at the beginning of the 2023 both help moderate capital depletion under the adverse scenario. Despite combined losses of EUR 498bn (under an adverse scenario), EU banks remain sufficiently capitalised to continue to support lending to households and corporates also in times of severe stress. The high current level of macroeconomic uncertainty shows however the importance to remain vigilant and that both supervisors and banks should be prepared for a possible worsening of economic conditions.

Full press release and report are available on the EBA website.