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29 November 2018

Banking sector able to withstand disorderly Brexit, says Bank of England

The UK banking sector is strong enough to withstand a deep simultaneous recession of both the UK and global economies, the Bank of England (BoE) has said.
 
The announcement followed the latest stress tests for the UK’s largest lenders, a pre-financial crisis staple for dividends. The results were due to the banks increasing, on average, their common equity Tier 1 (CET1) ratio - a key measure of the strength of their balance sheets - to a level nearly three and half times higher than before the 2008 crisis.
 
Stuart Ryan, Investment Management Department Manager at Redmayne Bentley, said: “This news will be welcomed by investors as the passing of the latest stress test signals the banks’ ability to continue to pay dividends post-Brexit. This is especially good news for Lloyds and Royal Bank of Scotland who have only recommenced dividend payments to investors in 2015 and 2018 respectively.”
 
The announcement of the results was brought forward by one week, in preparation for Brexit in March 2019. Seven banks and building societies have taken part, with more stringent criteria used than the financial crisis of 2008-2009.
 
The BoE said the “2018 scenario incorporates deep simultaneous recessions in the UK and global economies” as well as “large falls in asset prices”. The scenarios used were based on a 33% fall in property prices, 40% fall in commercial property prices and unemployment peaking at 9.5%. Further criteria included a fall in UK GDP of 4.7%, world GDP falling by 2.4%, China GDP dropping 1.2% and the UK bank rate rising to 4%. These criteria are similar to those used in 2017, which the UK’s biggest lenders passed.
 
Stuart added: “These results are the first to be published under the new accounting rules called IFRS9, forcing lenders to make provisions for losses sooner than during the financial crisis, which could have implications to the distribution of dividends to shareholders in the future.
 
“The Bank of England also commented on the consequence of a no-deal Brexit warning of GDP declining, inflation and unemployment increasing with house prices and commercial property declining also. However, BoE governor Mark Carney highlighted that this is what could happen, not what is going to happen.”
 
Ends

Notes to Editors

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Redmayne Bentley offers a full range of services, from investment management services suitable for different life stages, through to traditional stockbroking, dealing with advice and tax efficient investments.
Redmayne Bentley’s service has repeatedly been recognised with quality service and administration awards, most recently Best Full Service Stockbroker, Best Stockbroker for Customer Service, Best Self Select ISA and overall Stockbroker of the Year at the Investors Chronicle / Financial Times Investment and Wealth Management Awards 2018.
 
 
Banking sector able to withstand disorderly Brexit, says Bank of England
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