RBS to sell assets, cut costs after failing stress test

LONDON • The Royal Bank of Scotland (RBS) is the worst prepared among Britain's lenders for another financial crisis, the country's central bank said yesterday, forcing the state-rescued lender to raise more cash.

The Bank of England, revealing its latest stress tests on Britain's top seven banks, added that two - Barclays and Standard Chartered - also missed key hurdles but had taken steps to strengthen their capital positions.

The stress tests, designed to see if the sector can weather a global recession and crashing house prices, found that four out of the seven top banks did not have capital inadequacies based on their balance sheets at the end of 2015.

The four are HSBC, Lloyds Banking Group, Nationwide Building Society and Santander UK.

"The bank's 2016 stress test comprised a severe, synchronised UK and global recession with associated shocks to financial market prices. It also incorporated a misconduct cost stress," the central bank's financial policy committee said in a report.

It added that, in light of the tests and action agreed by RBS, "the UK banking system is in aggregate capitalised to support the real economy in this scenario".

RBS is still 73 per cent government owned after receiving an enormous bailout at the height of the global financial crisis.

"RBS has agreed a revised capital plan... to improve its stress resilience in the light of the various challenges and uncertainties facing both the bank and the wider economy highlighted by the concurrent stress testing process," the group said yesterday.

The Edinburgh-based company added that it would boost its balance sheet by taking actions, including further asset sales and cost cutting, although it is not set to tap markets for extra finance.

The news sent RBS shares sliding more then 2.5 per cent in early morning deals on London's rising stock market.

The Bank of England also warned that Brexit would continue to cast a shadow over the economy. "The outlook for UK financial stability remains challenging," it added.

"The UK economy has entered a period of adjustment following the EU referendum. The likelihood that some UK-specific risks to financial stability could materialise remains elevated."

The outlook for Britain's financial stability was dependent on an orderly exit from the European Union, the central bank cautioned.


A version of this article appeared in the print edition of The Straits Times on December 01, 2016, with the headline 'RBS to sell assets, cut costs after failing stress test'. Print Edition | Subscribe