Royal Bank of Scotland was third-most affected of 51 banks tested, while Barclays also fared poorly under stress scenario

This article is more than 4 years old

This article is more than 4 years old

The Royal Bank of Scotland has taken the biggest hit to its financial strength of any UK bank subjected to European-wide health checks on major banks.

The 73% taxpayer-owned bank insisted that despite being the third-most affected of any of the 51 banks, it was well on the way to becoming stronger and more risk-averse.

Its capital ratios fall by more than seven percentage points under the tests imposed by the European Banking Authority and, under the imaginary scenario, ends up with an 8% capital ratio. The absolute minimum is 4.5%.

It means that RBS, like Barclays, is among the 15 weakest banks tested.

But the tests do not allow the banks to take any actions, such as selling off risky operations between the test period of 2015 and 2018.

The Bank of England, which will conduct its own tests later in the year, said: “The results for the four banks [RBS, Barclays, Lloyds Banking Group and HSBC] are consistent with those of previous Bank of England stress tests.

“They provide evidence that major UK banks have the resilience necessary to maintain lending to the real economy, even in a macroeconomic stress scenario.”

Ewen Stevenson, RBS’s finance director, said the stress test results showed the bank’s “continued progress towards transforming the balance sheet to being safe and sustainable”.

“We are confident that in delivering our strategy, we will transform RBS into a low risk, resilient bank,” he said.

The Edinburgh-based bank, which publishes its results on 5 August, is braced for a penalty from US regulators for the way it sold mortgage bonds in the run up to the 2008 banking crisis, which could amount to £8bn.