Business
BOE STRESS TEST PASSED
BOE STRESS TEST PASSED.
About this update from Lloyds Banking Group Plc
[{"type":"text","content":"\n\n \n12 July 2023\nLLOYDS BANKING GROUP COMFORTABLY PASSES BANK OF ENGLAND STRESS TEST\nLloyds Banking Group (the Group), together with seven other financial institutions in the UK, has been subject to the 2022 annual concurrent scenario stress test (ACS), conducted by the Bank of England (BoE). The 2022 ACS also assessed the ring-fenced subgroups of the participating banks on a standalone basis for the first time.\n \nThe Group is pleased to note that it has comfortably passed the stress test and given this strong performance, the Group is not required to take any capital actions. The BoE calculated the Group's transitional CET1 ratio after the application of management actions as 11.6 per cent and its leverage ratio as 4.5 per cent. Despite the severity of the stress test scenario, and without the conversion of the Group's AT1 securities into equity, the Group significantly exceeded the capital and leverage hurdle rates of 6.6 per cent and 3.5 per cent respectively.\n \nThe ring-fenced bank (RFB) also passed the stress test, with the BoE calculating the RFB's transitional CET1 ratio after the application of management actions as 12.1 per cent, against the hurdle rate of 7.2 per cent.\n \nThe 2022 ACS scenario was designed to test the resilience of the UK banking system to deep, simultaneous recessions in the UK and global economies, with large falls in asset prices and higher global interest rates. The BoE stated at the outset of the exercise that the focus of this hypothetical scenario was to ensure that banks were able to absorb rather than amplify shocks, and continue to lend to UK households and businesses. The scenario was more severe than the last global financial crisis and combined rapidly rising interest rates and unemployment, in conjunction with significant falls in property prices and GDP. In particular, base rates rose to 6 per cent in the first year before gradually reducing to 3.5 per cent in subsequent years; inflation increased to 17 per cent and took five years to recover to the Bank of England's 2 per cent target; GDP fell by 5 per cent in the first year, unemployment peaked at 8.5 per cent in the second year, and UK house and commercial property prices fell 31 per cent and 45 per cent respectively over the first three years. In addition to these economic factors, and in line with previ...