KBC Bank NV welcomes today’s publication of the results of the 2010 EU-wide stress testing exercise coordinated by the Committee of European Banking Supervisors (CEBS), in cooperation with the European Central Bank, the CBFA (Belgian supervisory authority) and the National Bank of Belgium.
The stress test focused on KBC Bank NV.
KBC is satisfied that the outcome of the stress test proves that, even under these stress scenarios the bank adequately meets the legal and market requirements in terms of solvency. The fact that the CEBS benchmark and adverse scenarios are challenging ones, adds comfort to the result for KBC.
This stress test complements the risk management procedures and regular stress testing programmes set up in KBC Bank under the Pillar 2 framework of the Basel II and CRD
1 requirements.
The exercise was conducted using the scenarios, methodology and key assumptions provided by CEBS (see the aggregate report published on the CEBS website
2). As a result of the assumed shock under the adverse scenario, the estimated consolidated tier-1 capital ratio would change to 9.8% in 2011 compared with 10.9% at the end of 2009. An additional sovereign risk scenario would have a further impact of 0.4 percentage points on the estimated tier-1 capital ratio, bringing it to 9.4% at the end of 2011, compared with the regulatory minimum of 4%.
This last result suggests a buffer of 4.6 billion EUR of the tier-1 capital against the threshold of 6% of tier-1 capital adequacy ratio as agreed exclusively for the purposes of this exercise. This threshold should by no means be interpreted as a regulatory minimum (the regulatory minimum for the tier-1 capital ratio is set at 4%), nor as a capital target reflecting the risk profile of the institution determined as a result of the supervisory review process in Pillar 2 of the CRD.
KBC Bank has held rigorous discussions of the results of the stress test with the CBFA and the National Bank of Belgium.
Given that the stress test was carried out under a number of key common simplifying assumptions (e.g. constant balance sheet) the information on benchmark scenarios is provided only for comparison purposes and should in no way be construed as a forecast.
The objective of the extended stress testing exercise is to assess the overall resilience of the EU banking sector and KBC Bank’s ability to absorb further possible shocks on credit and market risks, including sovereign risks.
In the interpretation of the outcome of the exercise, it is imperative to differentiate between the results obtained under the different scenarios developed for the purposes of the EU-wide exercise. The results of both the benchmark and adverse scenarios should not be considered as representative of the current situation or possible present capital needs.
A stress testing exercise does not provide forecasts of expected outcomes, nor does it reflect in any way KBC’s own budgets and forecasts. It is rather a “what-if “ analysis, based on a number of plausible but extreme assumptions which are therefore not very likely to materialise, selected by CEBS, aimed at supporting the supervisory assessment of the adequacy of the bank’s capital. Different stresses may produce different outcomes depending on the circumstances of each institution.
1 Directive EC/2006/48 – Capital Requirements Directive (CRD)
2 See: http://www.c-ebs.org/EU-wide-stress-testing.aspxSource: KBC GroupDate: 26.07.2010
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