Lloyds most at risk in UK bank stress tests, says Citigroup

9th Dec 2014 11:03

Lloyds Banking Group is the most at risk in the UK banking stress tests, according to Citigroup, ahead of the results due next week.All of the major UK banks passed the European Banking Authority's (EBA) Europe-wide stress tests in October, but the upcoming review from Bank of England (BoE) will use a more aggressive stance, Citigroup said.For example, the BoE is testing banks' financial health under a scenario in which assumes a 3.5% peak-to-trough decline in UK real gross domestic product until the end of 2015, compared with the hypothetical 2.1% fall in the EBA's review.The BoE will also see how banks will cope with higher unemployment rates, higher interest rates and a steeper decline in property and equity prices.This will be the case for lenders' UK activities only; all non-UK banking book exposures will be stressed using the same assumptions as used in the EBA tests.The BoE has also said that banks' end-point Basel III common-equity tier one (CET1) ratio must be at least 4.5%."All listed banks are likely to 'pass', in our view, but we view Lloyds as most at risk, due to its large exposure to UK mortgages," the broker added.While the bank's risk profile has "improved markedly" over the past two years, Citi said that the company is still not without risk."The risk remains that economic conditions could deteriorate again, leading to reduced levels of activity and higher impairment losses. In addition, there is a degree of restructuring risk as the group continues to run-down legacy assets."The BoE stress test results will be due out at 07:00 on 16 December.Lloyds' stock was down 0.8% at 79.75p by 11:17 on Tuesday.