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Free AccessMNI: Interest Rate Risk is Well Managed in Most EU Banks - ECB
By Christian Vits
FRANKFURT (MNI) - Interest rate risk is well managed in most banks across
Europe, the European Central Bank said in its latest banking stress test.
"Higher interest rates would lead to higher net interest income in the next
three years for most of the banks directly supervised by the ECB, but to lower
economic value of equity", according to the results of the 2017 ECB stress test,
published Monday.
The ECB conducted a sensitivity analysis of interest rate risk in the
banking books based on year-end 2016 numbers. The results were used in the
yearly assessment of the banks' overall capital demand.
The ECB applied six hypothetical interest rate shocks to determine how the
economic value of equity and net interest income projections would change in an
evolving interest rate environment. The six shocks drew on the ones set by the
Basel Committee on Banking Supervision and captured changes in the level and
shape of the interest rate curve, the ECB said.
The shocks were hypothetical and not modelled as projections for the
development of interest rates in the euro area.
"A hypothetical increase in interest rates of 200 basis points would lead
on aggregate to a rise in net interest income of 4.1 percent in 2017 and of 10.5
percent by 2019, while the economic value of equity would decrease on aggregate
by 2.7 percent," the bank said.
"Should interest rates stay at their end-2016 level and absent any credit
growth, the aggregate net interest income would however decrease by 7.5
percent."
These projections are strongly influenced by the assumptions banks make
about their customers' behaviour, the ECB added. For example, under a rising
rates scenario, the stickiness of retail deposits constitutes a crucial
assumption for the increase in net interest income to take place.
--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com
[TOPICS: M$E$$$,M$X$$$,MC$$$$,M$$EC$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.