Bank of England stress tests: Berenberg warns Lloyds Banking Group could be hit hard by 2016 stress tests while Standard Chartered and HSBC could fare better than in recent years
Lloyds Banking Group is "particularly vulnerable to larger stress test losses" in 2016 compared to Britain's other big banks, analysts at Berenberg have warned.
The Bank published its plans yesterday for this year’s stress test of Britain’s biggest banks, saying it would test to see how lenders would fare in a scenario where global growth falls 1.9 per cent, while UK GDP growth contracts 4.3 per cent. Under the scenario, UK unemployment would increase by 4.5 per cent and residential property prices would fall by 31 per cent.
The test will also factor in market volatility, depreciating currencies in emerging markets and oil prices of $20 per barrel.
HSBC, Standard Chartered, Lloyds, Royal Bank of Scotland (RBS), Barclays, Santander UK and the Nationwide building society will be subject to the stress test, the results of which are set to be published in the fourth quarter of this year.
In a note sent to clients earlier today, analysts at Berenberg said Lloyds is "most exposed to recent lending trends, and, as a result, to potentially larger stress test losses".
The analysts added that given the severity of the UK downturn in the Bank of England's stress test scenario, Lloyds is "particularly vulnerable to larger stress test losses…given its large UK market share and recent consumer credit growth".
But Berenberg also said that Asia-facing banks like Standard Chartered and HSBC were likely to fare better in this year's stress test than in previous exercises, because global growth has "less incremental importance" in the 2016 scenario compared to earlier tests.