TIDMBKIR
RNS Number : 7598F
Bank of Ireland(Governor&Co)
01 August 2016
The Governor and Company of the Bank of Ireland (the
"Group")
EBA Stress Test 2016
1 August 2016
The Group was subject to the 2016 EU-wide stress test conducted
by the European Banking Authority (EBA), in cooperation with the
European Central Bank (ECB), the European Commission (EC) and the
European Systemic Risk Board (ESRB).
The Group notes the announcement made on 29 July 2016 by the EBA
on the 2016 EU-wide stress test and acknowledges the outcomes of
this exercise.
The 2016 EU-wide stress test does not contain a pass fail
threshold and instead is designed to be used as a crucial piece of
information for the supervisory review process in 2016. The results
will thus allow competent authorities to assess the Group's ability
to meet applicable minimum and additional own funds requirements
under stressed scenarios based on a common methodology and
assumptions.
In the stress test two scenarios were run: a baseline scenario
and an adverse scenario which assumes a severe economic downturn.
The starting point in the stress test is the Common Equity Tier 1
(CET1) ratio for the Group as per 31 December 2015 (13.3% on a
transitional basis and 11.3% on a fully loaded basis). In the
baseline scenario the Group maintains a CET1 ratio of 16.1%
(transitional) and 15.0% (fully loaded) in 2018. In the adverse
scenario this ratio decreases to 7.7% (transitional) and 6.1%
(fully loaded) in 2018.
The Group's capital position is strong and the Group continues
to organically generate capital, including 70bps on a transitional
basis in the 6 months to June 2016. As at 30 June 2016, the Group's
transitional CET 1 ratio was 12.8% and the Group's fully loaded CET
1 ratio was 10.7%. As previously stated, the Group expects to
maintain sufficient capital to meet, at a minimum, applicable
regulatory capital requirements plus a management buffer.
Detailed results of the stress test are published on the ECB
website and further detailed disclosures in relation to the EU-wide
stress tests are published on the EBA's website. The relevant
disclosure templates in relation to Bank of Ireland are also
available on the Group's website at
http://www.bankofireland.com/about-bank-of-ireland/investor-relations/financial-information
Ends
For further information please contact:
Bank of Ireland
Andrew Keating Group Chief Financial Officer +353 (0)766 23
5141
Alan Hartley Director of Group Investor Relations +353 (0)766 23
4850
Pat Farrell Head of Group Communications +353 (0)766 23 4770
Additional information
The EBA have set out the methodology and key assumptions
underlying the stress test and the adverse scenario including:
-- The cumulative Irish GDP growth over the three-year time
horizon (2016-2018) is assumed to be 10.4% lower in the adverse
scenario as compared to the baseline scenario;
-- The assumption of a static balance sheet. This means that
assets and liabilities which mature within the exercise are
replaced with similar financial instruments;
-- Banks are required to assume no interest income on the
increase in defaulted assets in the adverse scenario;
-- There is an increasing cost of funding with a constrained
pass through of rising rates to loans and other assets.
For the Group the difference of 8.4% at December 2018 between
the transitional CET 1 ratio in the baseline scenario (16.1%) and
the transitional CET 1 ratio in the adverse scenario (7.7%) is
primarily due to:
-- The lower GDP growth (cumulatively 10.4% lower) in the
adverse scenario which, together with other aspects of the common
methodology, has resulted in an increase in the level of defaulted
loans for the Group. In the adverse scenario defaulted loans are
assumed to increase to over EUR18bn at December 2018 (from
EUR10.6bn at December 2015). Impairment charges in the adverse
scenario average c.EUR1bn per annum during the period 2016 - 2018.
In addition no interest income has been recognised on the increased
level of defaulted loans.
-- The assumption of a static balance sheet means that assets
such as the low yielding Irish tracker mortgages and liabilities
such as the Contingent Capital Note (fixed coupon of 10%) which
mature within the exercise are assumed to be replaced with similar
(duration, price etc.) assets and liabilities.
-- The assumption of an increasing cost of funding has led to an
additional cost on the Group's current accounts and other customer
deposits with a constrained pass through to loan assets.
-- Partly offsetting the above assumptions is the impact of
assumed higher interest rates on the Group's pension deficit.
As can be noted from the EBA disclosures in respect of the
Group, the overall impact of the adverse scenario is that the
average annual Operating income recognised during the period of the
adverse scenario is c.36% lower than the 2015 level of Operating
income; the average level of annual impairment charges is c.350%
higher than the charges incurred in 2015.
Forward-Looking Statement
This document contains certain forward-looking statements with
respect to certain of the Bank of Ireland Group's (the 'Group')
plans and its current goals and expectations relating to its future
financial condition and performance, the markets in which it
operates, and its future capital requirements. These
forward-looking statements often can be identified by the fact that
they do not relate only to historical or current facts. Generally,
but not always, words such as 'may,' 'could,' 'should,' 'will,'
'expect,' 'intend,' 'estimate,' 'anticipate,' 'assume,' 'believe,'
'plan,' 'seek,' 'continue,' 'target,' 'goal,' 'would,' or their
negative variations or similar expressions identify forward-looking
statements, but their absence does not mean that a statement is not
forward-looking. Examples of forward-looking statements include
among others, statements regarding the Group's near term and longer
term future capital requirements and ratios, level of ownership by
the Irish Government, loan to deposit ratios, expected impairment
charges, the level of the Group's assets, the Group's financial
position, future income, business strategy, projected costs,
margins, future payment of dividends, the implementation of changes
in respect of certain of the Group's pension schemes, estimates of
capital expenditures, discussions with Irish, United Kingdom,
European and other regulators and plans and objectives for future
operations.
Such forward-looking statements are inherently subject to risks
and uncertainties, and hence actual results may differ materially
from those expressed or implied by such forward-looking statements.
Such risks and uncertainties include, but are not limited to, the
following:
geopolitical risks which could potentially adversely impact the
markets in which the Group operates; uncertainty following the UK
vote to exit the EU as to the nature, timing and impact of a UK
exit, could impact the markets in which the Group operates
including pricing, partner appetite, customer confidence and
demand, and customers' ability to meet their financial obligations
and consequently the Group's financial performance, balance sheet
and capital; concerns on sovereign debt and financial uncertainties
in the EU and the potential effects of those uncertainties on the
financial services industry and on the Group; general and sector
specific economic conditions in Ireland, the United Kingdom and the
other markets in which the Group operates; the ability of the Group
to generate additional liquidity and capital as required; property
market conditions in Ireland and the United Kingdom; the potential
exposure of the Group to credit risk and to various types of market
risks, such as interest rate risk and foreign exchange rate risk;
the impact on lending and other activity arising from the emerging
macro prudential policies; the performance and volatility of
international capital markets; the effects of the Irish
Government's stockholding in the Group (through the Ireland
Strategic Investment Fund) and possible changes in the level of
such stockholding; changes in applicable laws, regulations and
taxes in jurisdictions in which the Group operates particularly
banking regulation by the Irish and United Kingdom Governments
together with the operation of the Single Supervisory Mechanism and
the establishment of the Single Resolution Mechanism; the impact of
the continuing implementation of significant regulatory
developments such as Basel III, Capital Requirements Directive
(CRD) IV, Solvency II and the Recovery and Resolution Directive;
the exercise by regulators of powers of regulation and oversight in
Ireland and the United Kingdom; the introduction of new government
policies or the amendment of existing policies in Ireland or the
United Kingdom; the outcome of any legal claims brought against the
Group by third parties or legal or regulatory proceedings more
generally, that may have implications for the Group; the
development and implementation of the Group's strategy, including
the Group's ability to achieve net interest margin increases and
cost reductions; the inherent risk within the Group's life
assurance business involving claims, as well as market conditions
generally; potential further contributions to the Group sponsored
pension schemes if the value of pension fund assets is not
sufficient to cover potential obligations; the Group's ability to
address weaknesses or failures in its internal processes and
procedures including information technology issues and equipment
failures and other operational risk; the Group's ability to meet
customers' expectations in mobile, social, analytics and cloud
technologies which have enabled a new breed of 'digital first'
propositions, business models and competitors; failure to establish
availability of future taxable profits, or a legislative change in
quantum of deferred tax
assets currently recognised; and difficulties in recruiting and
retaining appropriate numbers and calibre of staff.
Nothing in this document should be considered to be a forecast
of future profitability or financial position and none of the
information in this document is or is intended to be a profit
forecast or profit estimate. Any forward-looking statement speaks
only as at the date it is made. The Group does not undertake to
release publicly any revision to these forward-looking statements
to reflect events, circumstances or unanticipated events occurring
after the date hereof.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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