Rabobank: 2021 EU-Wide Stress Test Results
The European Banking Authority (EBA) has conducted the 2021 EU-wide stress test exercise in cooperation with De Nederlandsche Bank (DNB), the European Central Bank (ECB), and the European Systemic Risk Board (ESRB) and has published the results. Rabobank took part in this exercise which assesses the resilience of banks. This time the adverse scenario was based on a prolonged severe Covid-19 setting combined with a ‘lower for longer’ interest rate environment, with the starting point being the end of year balance sheet 2020 of banks in the midst of the pandemic.
Rabobank notes the announcements made today by the EBA on the EU-wide stress test and fully acknowledges the outcomes of this exercise. The 2021 EU-wide stress test does not contain a pass fail threshold and instead is designed to be used as an important source of information for the purposes of the SREP. The results will assist competent authorities in assessing Rabobank’s ability to meet applicable prudential requirements under stressed scenarios.
The adverse stress test scenario was set by the ECB/ESRB and covers a three-year time horizon (2021-2023). The stress test was carried out by applying a static balance sheet assumption as of December 2020, and therefore does not take into account future business strategies and management actions nor any subsequent and future financial performance. It is also not a forecast of Rabobank’s profits. The Netherlands is hit relatively hard in this scenario compared to other European countries with regard to key components in the stress test, for instance real GDP, unemployment and real estate prices. Furthermore, the scenarios used in the 2021 stress test do not take into account the strong economic rebound in the past months that has been observed in various countries, including the Netherlands. Rabobank will announce its financial results for the first six months of 2021 on 12 August 2021.
In the baseline scenario Rabobank’s fully loaded common equity Tier 1 ratio (CET1) would amount to 16.39% as per FYE 2023. Under the adverse scenario the CET1 ratio would end at 10.02% as per FYE 2023. Rabobank’s fully loaded CET1 ratio was 16.8% as per 31 December 2020, providing a buffer of 280bps above its own CET1 ratio ambition of >14% and 680bps above the current regulatory MDA requirement of 10%.
The outcome of this stress test exercise does not result in additional management actions at Rabobank, other than the continued execution of the already announced next phase of its transition roadmap as to maintain a rock-solid capital position. This includes creating a more simplified and efficient organization, targeting gross savings of EUR 600mn by 2024 and expanding and leveraging the franchise to realize banking growth.
The full results for Rabobank are available on the EBA website.