The test applied a hypothetical adverse scenario to the Group’s balance sheet as at 31 December 2016 and compared the theoretical Common Equity Tier 1 (“CET1”) ratio and Tier 1 leverage ratio positions of RBS before and after the impact of strategic management actions.
RBS's low point CET1 ratio under the hypothetical adverse scenario would have been 6.4% before the impact of strategic management actions. This is below RBS’s updated 6.7% Individual Capital Guidance (“ICG”) and below the post-stress CET1 Systemic Reference Point (“SRP”) of 7.4% (please refer to definitions in notes below the table). After the impact of strategic management actions, the ratio would have been 7.0%. This takes the result above the ICG hurdle rate of 6.7% but it remains below the SRP of 7.4%.
RBS’s Tier 1 leverage ratio under the hypothetical adverse scenario would have been 3.7% before the impact of strategic management actions. This is above the hurdle rate of 3.25%. After the impact of strategic management actions, the ratio would have been 4.0%.
The reduction in the CET1 ratio from the start point to the minimum stressed ratio before the impact of 'strategic' management actions or AT1 conversion has improved from 1,000 basis points last year to 700 basis points this year. The bank has taken a number of actions since 31 December 2016 to improve its capital position stress resilience, including the on-going run-down of Capital Resolution (risk-weighted assets (“RWAs”) reduced by £11.4 billion (33%) to £23.1 billion in the first nine months of 2017), the continued reduction in certain credit portfolios and the resolution of various litigation cases and regulatory investigations. A number of these actions impacted our CET1 ratio which was 15.5% as at 30 September 2017, compared to 13.4% as at 31 December 2016. This is above RBS’s CET1 ratio target of 13.0%.
RBS has not been required to submit a revised capital plan.
Commenting on the results, Ewen Stevenson, Chief Financial Officer, said:
“We continue to make progress towards the stress resilient bank we aspire to be. 2017 represented another year of material improvement with our peak-to-trough stress resilience improving by 300bps from last year's stress test. Until we have resolved our remaining major legacy conduct issues and non-core portfolio interests, we will continue to show stress test results weaker than our long term targets.”
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