Roundup: World's oldest bank performs poorly in European stress tests

Italy's third largest bank and the world's oldest bank, Monte dei Paschi di Siena, performed poorly in the adverse scenario included in the stress test by the European Banking Authority (EBA),according to local media reports on Saturday.

According to EBA's test result, Monte dei Paschi di Siena was revealed as the weakest in Europe under adverse conditions, but the other four Italian banks showed a good performance, the Bank of Italy, the country's central bank, said in a statement.

The EBA published the results of the 2016 EU-wide stress test late on Friday. The report concerns 51 banks.

EBA said that the objective of the stress test is to provide supervisors, banks and other market participants with a common analytical framework to consistently compare and assess the resilience of large EU banks to adverse economic developments.

The results was widely awaited, as the Italian banking system has been at the center of focus.

Many international media in the past months warned about the risk of a banking crisis, but the Italian government has reiterated that the national banking system is solid.

Despite the stringent nature of the exercise and the heavy tensions of recent years, four of the five Italian banks featured in the EBA sample has showed good resilience, Bank of Italy commented after publication of the results.

For the four Italian banks -- UniCredit, Intesa Sanpaolo, People's Bank and Bank of UBI, the weighted impact on the concerned ratio of the adverse scenario is 3.2 percentage points, against an EBA sample average of 3.8 percentage points. With the inclusion of Monte dei Paschi di Siena, the weighted impact for the Italian banks comes of 4.1 percentage points, according to the EBA.

Monte dei Paschi di Siena passes the test in the baseline scenario but obtains a negative result in the adverse scenario, the EBA said in its statement.

"The EBA's 2016 stress test shows the benefits of the capital strengthening done so far are reflected in the resilience of the EU banking sector to a severe shock,"said Andrea Enria, EBA chairman.

"This stress test is a vital tool to assist supervisors in accelerating the process of repair of banks' balance sheets, which is so important for restoring lending to households and businesses," he added.

Enria said that the EBA's stress test is not a pass-fail exercise. "Whilst we recognize the extensive capital raising done so far, this is not a clean bill of health. There remains work to do," he said.

"Our stress test has methodological constraints to ensure comparability and consistency. That means our results are key pieces of information that should be considered in the context of each bank's specific situation,"the EBA chairman said.

According to the Bank of Italy, the Monte dei Paschi di Siena's Board of Directors has approved a plan to sell its entire portfolio of bad loans and carry out a capital increase of up to 5 billion euros (5.5 billion U.S. dollars). "This will make it possible to significantly increase provisioning for the remaining non-performing loans," the central bank said in its statement.

"As a result of this undertaking, Monte dei Paschi di Siena will have a stock on non-performing loans -- but not bad loans -- in line with the Italian banking system average. Its supervisory capital will remain at the current levels and profitability will improve both looking at funding and lending costs and at the return on assets and liquidity,"the Bank of Italy said. Enditem