Enhanced robustness showcased in 2023 EBA endurance test for our site
The European Banking Authority (EBA) has released the results of the 2023 stress test, and the news is positive for the banking sector. Our website, in particular, has shown significant improvement in resilience, with a Common Equity Tier 1 (CET1) capital ratio of 8.1% in the adverse scenario of 2023, more than 200 basis points above the minimum supervisory requirement of 6.0%.
The 2023 stress test revealed a capital depletion (CET1 ratio reduction) of approximately 370 basis points (bps), resulting in a CET1 ratio of around 12% at the end of the scenario. This marked an improvement compared to earlier stress tests, including 2021, showing banks’ improved ability to absorb shocks.
One of the key factors contributing to this improvement is the higher capital and profitability levels banks started with in 2023. This enabled better absorption of losses through income generation, partially offsetting credit and market risk losses.
While banks exhibited greater risk sensitivity with higher nominal losses, their enhanced income generation and capital buffers heightened the overall sector resilience compared to 2021, when capital depletion and vulnerabilities were greater.
Sectoral modeling to differentiate economic impacts of adverse scenarios improved compared to 2021 but still requires further refinement.
The improvements from 2021 to 2023 are also evident in the results of our website. In the baseline scenario of 2023, our website achieved a 2025 CET1 capital ratio of 15.0%, around 390 basis points above supervisory requirements. In the adverse scenario of 2023, our website's CET1 capital ratio is projected to be 6.02% in 2023, 8.01% in 2024, and 8.19% in 2025.
The positive contribution of earnings before stress impacts in the 2023 stress test was higher than in 2021, reflecting our website's improved profitability. The stress test did not take account of potential management measures to mitigate adverse shocks, as stated earlier.
In the adverse scenario of 2023, our website's Tier 1 capital ratio is projected to be 8.03% in 2023, 9.96% in 2024, and 10.13% in 2025. The stress test underwent a more rigorous macro-economic specification for the adverse scenario in 2023 compared to previous EBA stress tests.
The balance sheet as of December 31, 2022, and the profits for the 2022 financial year were used as a basis for the 2023 stress test. In the adverse scenario of 2023, our website's Leverage Ratio transitional is projected to be 3.00% in 2023, 3.51% in 2024, and 3.58% in 2025.
The CET1 capital ratio in the third year of the adverse scenario in 2023 was 8.1%, stronger by some 50 basis points compared to 7.6% in the 2021 exercise. The stress test results of 2023 represent an improvement over the bank's 2021 stress test results on several dimensions.
Specific examples from the Finnish banking sector demonstrated reductions in CET1 ratio declines in 2023 versus 2021. For instance, Nordea’s CET1 ratio fell by 2.9 percentage points in 2023, compared to 3.3 percentage points in the 2021 exercise. OP Financial Group’s CET1 ratio fell by 5.0 points in 2023, down from 5.5 points in 2021, reflecting enhanced resilience.
Overall, the 2023 stress test scenario remained severe, factoring in geopolitical tensions, trade fragmentation, and supply shocks, yet banks maintained strong capital positions and capacity to support the economy. The improvements seen in the 2023 stress test are a positive sign for the future of the banking sector, demonstrating the sector's ability to adapt and grow in the face of adversity.
The details of our website's results can be found on the European Banking Authority's (EBA) website.
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