European Banking AuthorityEVA) launched on Tuesday stress test to assess the solvency of European banks in a hypothetical unfavorable scenario considered to be the most difficult ever used by the institution in its examinations, with participation of 70 EU organizationsincluding eight Spaniards, whose results will be published at the end of July next year.

In particular, the stress test will examine a sample of 70 EU banks, of which 57 correspond to the member countries of the Common Supervisory Mechanism (ESM), which cover approximately 75% of the total assets of the banking sector in the EU and Norway. Compared to previous stress tests, FY 2023 covers 20 more banks.

Germany will be the country with the most representatives in the tests, with 14 entities, ahead of eight verified banks in Italy and eight in Spain, while there will be seven entities in France. In the Spanish case, the entities that passed the EBA tests would be Abanca, BBVA, Banco de Sabadell, Banco Santander, Bankinter, CaixaBank, Kutxabank and Unicaja Banco.

The test, which examines the solvency of EU banks in a hypothetical adverse macroeconomic scenario over three years (2023-2025), aims to assess whether the level of capital is sufficient ensure that banks support the economy during times of stress and also strengthen market discipline by publishing consistent and comparable data for each bank, as well as reporting on the Supervisory Review and Evaluation Process (SREP) to the competent supervisory authorities.

In the 2023 edition, endurance test designed to provide valuable information to assess the sustainability of the sector European banking in the current uncertain and changing macroeconomic environment.

So the worst case scenario takes into account hypothetical geopolitical tensionswith high inflation and higher interest rates, which has a strong adverse impact on private consumption and investment both domestically and globally.

the hardest scenario

As for the fall in GDP,the worst-case scenario for 2023 is the most severe still in use” to reflect the purpose of conducting a stress test to assess the resilience of the European banking system in the face of a severely deteriorating hypothetical macro environment.

In particular, according to the methodology published on Tuesday, worst case scenario exam involves 6% cumulative decline in GDP Twenty-seven and 5.9% in the case of the euro area, while unemployment will increase from the baseline by 6.1 and 5.7 percentage points respectively, reaching 12.4% in the euro area and 12.2% in the EU in 2025. .

on your side, Inflation rate will remain at 9.2% this year in the euro area and 9.7% in the EU, and in the considered horizon will decrease only to 3.7% and 3.8%, respectively. Similarly, residential prices will register a cumulative fall of 20.4% in the Eurozone and 21.1% in twenty-seven countries.

In the Spanish case, the evidence EBA suggests cumulative contraction of 5.4% of GDP compared to the starting scenario, below the euro area and EU averages, with a 5.6 p.p. .3% in 2025

Similarly, in the case of Spain housing prices will accumulate in the worst case drop by 19.4%, while in the commercial real estate sector in three years this figure will be 25.7%.

On the other hand, long-term interest rates in Spain will rise by 255 basis points from the baseline starting point, compared to 192 basis points in the euro area and 193 basis points in the euro area. Twenty seven.

ECB checks 42 more entities

In addition, the European Central Bank (ECB) will consider solvency of 99 credit institutions under direct supervision in 2023, including the 57 largest banks in the euro area, representing approximately 75% of banking assets in the region, as part of an EBA-coordinated stress test, and in parallel will conduct their own tests on another 42 medium-sized entities that participate in these stresses -tests.

The stress test that the ECB will present to these 42 small banks will usually be in accordance with the stress test conducted by the EBA and the same scenarios and elements of the methodology will be applied according to the criterion of proportionality, as suggested by the smaller size and less complexity of the objects.

The results of the stress test will be used to update each institution’s recommendation for Component 2 (P2G) as part of the Supervisory Review and Evaluation (SRP) process.

Similarly, qualitative findings about practice shortcomings objects in a stress test can also influence your requirements Component 2 and report on other oversight activities.

Likewise, the results of the resistance test will serve as support of macroprudential tasksand the ECB will assess the macroprudential implications of this exercise for the euro area.

Among the 42 companies that will be audited by the ECB in parallel with the stress tests of the EBA are Spain’s Ibercaja Banco and Banco de Crédito Social Cooperativo.