November 28, 2018 / 6:17 PM / a year ago

UPDATE 1-British banks withstand disorderly Brexit in Bank of England test

    * All seven British lenders pass annual health check
    * Barclays buybacks may be delayed by results
    * RBS passes test with flying colours
    * Graphic:
    * Graphic on Brexit economic impact:

 (Adds analyst comments, details, graphic)
    By Huw Jones and David Milliken
    LONDON, Nov 28 (Reuters) - All seven British banks and
building societies in this year's Bank of England stress test
passed, indicating they could withstand a disorderly Brexit
without having to curb lending.
    The BoE's Financial Policy Committee (FPC) said on Wednesday
that it has reviewed a scenario whereby Britain crashes out of
the European Union in March with no deal or transition period.
    "The FPC judges that the UK banking system is strong enough
to continue to serve UK households and businesses even in the
event of a disorderly Brexit," it said in its twice-yearly
Financial Stability Report.
    "No bank needs to strengthen its capital position as a
result of the stress test," it said, adding that the stress test
was tougher on banks than the disorderly Brexit scenario.
    Parliament is due to vote on Dec. 11 on Britain's divorce
settlement and transition deal with the EU, but it is unclear if
it will be approved, raising the prospect of a no-deal Brexit.
    HSBC, Barclays, Lloyds, Santander UK, Royal Bank of
Scotland, Nationwide Building Society and Standard Chartered all
ended the test with capital buffers above their bespoke pass
marks, the FPC said.
    The test results could, however, dampen expectations of
increased payouts by lenders such as Barclays, whose Chief
Executive Jes Staley has stoked hopes for investors.
    Analysts said that might now have to wait.
    "Despite speculation regarding 2019, we reaffirm our
expectation of no buyback (at Barclays) until 2020, where our
existing forecast is 1 billion pounds,” Ian Gordon, banking
analyst at Investec in London, following the test results.
    Barclays said in a statement that it remained its intention
to more than double its dividend to 6.5 pence per share for
2018, subject to regulatory approval.
    Gordon said other lenders’ plans to increase capital next
year - including Lloyds, Standard Chartered and RBS – should be
unaffected by the stress tests.
    State-controlled RBS sailed through the tests, potentially
paving the way it to hike its dividend after in August
announcing its first interim payout since its 45 billion pound
taxpayer bailout in 2008, of 2 pence per share.  
    The test assumed deep, theoretical domestic and global
economic crashes happening at the same time, along with
potentially hefty costs for misconduct.
    All seven lenders passed even when the full impact of a new
accounting rule on provisioning for souring loans was factored
in, the FPC said, though so-called contingent capital had to be
written down at Barclays and Lloyds.
    The test showed the banks taking a collective loss of 170
billion pounds ($218 billion) of trading and credit losses, but
still having high enough capital buffers to maintain lending.
    The banks have a trillion pounds of so-called liquid assets,
such as bonds and other instruments that can easily be sold at
short notice, and they could survive disruption lasting three
months to their wholesale funding markets, the BoE said.
    "They can now withstand many months without access to
foreign exchange markets," the BoE said, adding that the central
bank itself is able to lend in all major currencies.
    The Bank said it was maintaining the so-called
countercyclical capital buffer rate at 1 percent, but that it
stood ready to change this "in either direction as the risk
environment evolves".
($1 = 0.7809 pounds)

 (Additional reporting by Lawrence White and Iain Withers;
Editing by Alexander Smith)
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