EU banks under RAM Ratings’ coverage pass EBA stress test

Published on 30 October 2014

The results of the European Banking Authority (EBA) stress test on 26th October 2014 show that European Union banks under RAM Ratings’ coverage – Société Générale SA (SocGen), HSBC Holdings plc, Deutsche Bank AG and BNP Paribas – remain sufficiently capitalised. These financial institutions are expected to record end-2016 common equity tier-1 (CET-1) capital ratios of more than 8% under an adverse stress test scenario.

“The EBA stress test results affirm the ability of HSBC Holdings plc, Deutsche Bank AG and BNP Paribas to provide support to their respective Malaysian subsidiaries, HSBC Bank Malaysia Berhad and HSBC Amanah Malaysia Berhad, Deutsche Bank (Malaysia) Berhad, and BNP Paribas Malaysia Berhad,” said Wong Yin Ching, Co-Head of RAM’s Financial Institution Ratings.

Parental support features in elevating a bank’s rating above its stand-alone credit fundamentals, depending on its strategic importance to the larger group. RAM continues to view HSBC Bank Malaysia Berhad and HSBC Amanah Malaysia Berhad (both rated AAA/Stable/P1), Deutsche Bank (Malaysia) Berhad (rated AA1/Stable/P1), as well as BNP Paribas Malaysia Berhad (rated AA2/Stable/P1) as strategic components of the global operations of their parents. Support, if required, is expected to be readily extended.

Meanwhile, SocGen’s AAA/Stable/P1 Malaysian national-scale financial institution ratings are supported by its healthy capitalisation, which has been the result of earnings retention and deleveraging efforts over the last few years. As at end-June 2014, SocGen’s CET-1 capital ratio had risen to 10.2%, a sufficient level vis-à-vis relatively weaker asset quality indicators in emerging markets in Central and Eastern Europe, as well as Russia.

RAM maintains rating surveillance on HSBC Holdings plc, Deutsche Bank AG and BNP Paribas, given that their Malaysian subsidiaries are rated entities in RAM’s financial institutions portfolio. We are cognisant that litigation charges may have implications for some EU financial institutions, and that CET-1 capital ratios under an adverse stress scenario could be lower after imputing the full extent of Basel III requirements. We are monitoring developments closely in this regard.

Media contact
Joanne Kek
(603) 7628 1163
joanne@ram.com.my