OTP Bank passes EBA stress test

Analysis

Photo by Jessica Fejos

The EU-wide stress test of the European Banking Authority (EBA) for 2016 found that OTP Bankʼs Common Equity Tier 1 capital ratio would be 14.6% under the baseline scenario and 9.2% under the adverse scenario in 2018 compared to 12.9% at the end of 2015, the bank announced on the Budapest Stock Exchange website at the weekend, as reported by Hungarian news agency MTI.

The 9.2% CET1 level under the adverse scenario is well above the 5.5% threshold set as a minimum level in the previous EU-wide stress test conducted by the EBA in cooperation with the National Bank of Hungary (MNB) and the European Central Bank (ECB) in 2014, the bank said. 

OTP Bank said it fully acknowledges the outcome of the review.

The 2016 EU-wide stress test was conducted by the EBA in cooperation with the MNB, the ECB, the European Commission and the European Systemic Risk Board (ESRB).

The 2016 stress test does not contain a pass/fail threshold and instead is designed to be used as a crucial piece of information for the supervisory review process in 2016. The results will thus allow competent authorities to assess OTP Bank’s ability to meet applicable minimum and additional own fund requirements under stressed scenarios, based on a common methodology and assumptions.

The baseline and adverse scenarios were set by the ECB/ESRB and cover a three-year time horizon (2016-2018). Furthermore, both the baseline and the adverse scenarios have been determined by applying a static balance sheet assumption as of December 2015, and consequently do not take into account future business strategies and management actions. Consequently, the baseline and adverse stress test scenarios do not constitute a forecast of OTP Bank profits; moreover, even the baseline scenario suggests significantly lower profits than the management’s expectation for the three-year time horizon (2016-2018), the bank added.

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