In case of OTP Group, which is the only one Hungarian credit institution participating in the European Banking Authority’s stress test, there is no need for any supervisory intervention in the light of the results.
The European Banking Authority (EBA) released the 2021 stress test results today. The test is supposed to assess European banks’ resilience to shocks. The financial institutions participated in the exercise over a three-year horizon, assuming a hypothetical adverse macroeconomic scenario and using the common methodology provided by the EBA.
Consistent with the earlier EBA stress test in 2018, this year’s exercise does not contain a common pass/fail threshold, since it is designed to serve as an input to the 2021 Supervisory Review and Evaluation Process (SREP), mainly through determining the Pillar 2 capital requirements (related to supervisory review) or through various supervisory measures, if necessary.
The stress test covered a total of 50 European banks (representing roughly 70 per cent of the EU’s banking sector in terms of total assets), 38 of which are based in countries regulated by the Single Supervisory Mechanism (SSM) operated with the participation of the European Central Bank, while another 12 are headquartered in Denmark, Poland, Hungary, Norway or Sweden.
From Hungary, only OTP Group participated in the 2021 stress test exercise. This is because OTP Group’s total assets exceeded EUR 30bn, which was the limit to participate in the exercise. The OTP Group is present in eleven countries of the Central and Eastern European region through its subsidiaries.
Based on the capital position, the most important factor in the stress test, OTP Group’s results slightly worsened compared to the exercise three years ago, but it would still exceed the current regulatory minimum SREP capital requirement throughout the stress horizon.
OTP Bank’s Common Equity Tier 1 capital ratio (CET1), adjusted due to the transition to the IFRS 9 standard compulsory at the European level from 2018 and not containing the transitional arrangements of the relevant European regulation, would change from 14.24 per cent in 2020 to 11.20 per cent (or from 15.43 per cent to 11.28 per cent with the transitional arrangements) at the end of the three-year shock scenario. In the case of the CET1 ratio, the difference between the baseline and the stress scenario is close to 5 percentage points at the end of the three-year horizon, which confirms the stress test’s severity. The quality assurance of the published stress test data was the task of competent supervisory authorities, and in Hungary the Magyar Nemzeti Bank (MNB) was responsible for this.