In the wake of the news about Royal Bank of Scotland failing the 2016 BoE stress test, the lender is facing a series of issues.
Will RBS collapse?
Yesterday, the BoE latest round of stress tests on the banking industry in the UK has indicated that RBS did not meet the required benchmarks. Following the results of the stress test on Wednesday, RBS has announced a revised capital agenda.
Now, customers of RBS are set to face more cost cuts and branch shutdowns in the wake of failed stress tests. According to the BoE, RBS would be the riskiest large bank in a recession. Moreover, the central bank of England has indicated that the RBS might collapse in the future. Now, the bailed-out bank is struggling for extra funds in order to become more reliable and secure. Additionally, the bank has already cut 2,700 jobs this year and closed 166 outlets in the year to April.
Banking analyst for financial service company UBS, Jason Napier, has stated:
‘We expect a bigger cost and restructuring plan in February. RBS remains under pressure to deliver – principally by achieving further significant cost cuts.’
Moreover, RBS’s share prices dropped yesterday, with anxious investors wiping £320 million off the share price in the wake of stress tests news.
2016 BoE stress test
An analyst at City firm Hargreaves Lansdown, Laith Khalaf, has commented:
‘RBS is still the weak link in the UK banking chain, almost a decade after the financial crisis came close to wiping the bank out.’
The BoE report has tested what would happen if the world was in a global recession, such as the crash in 2008. Moreover, the recent stress tests’ results did not take into consideration the effects of Brexit. Yet, the report from BoE has stressed that this particular round of tests was the toughest so far. This year’s stress tests assumed Chinese GDP decreasing to -0.5 percent, annual global GDP growth dropping to -1.9 percent, the UK GDP sliding by 4.3 percent combined with 4.5 percent surge in the domestic unemployment rate.
It appeared that the potential crash would destroy £24 billion of RBS’s £38 billion buffer. This is considered below the secure levels, according to the BoE.
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