The big six lenders – Barclays, NatWest, Lloyds Banking Group, HSBC, Nationwide and Santander – passed the Bank of England Financial Policy Committee’s (FPC’s) 2025 stress test, showing they were “well-capitalised” with “robust earnings”.
Lenders were tested on the scenario of a global supply shock resulting in a “deep recession” across countries and higher inflation across advanced economies, leading central banks to raise interest rates.
This included a 28% reduction in house prices, an 8.5% peak in unemployment and a base rate of 8%.
In the stress test, the aggregate common equity tier 1 (CET1) capital ratio starts at 14.5% and falls to a low point of 11% in the first year.
The FPC found that no lender would need to strengthen its capital position in this hypothetical scenario.
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The committee concluded that the banking system was “sufficiently well-capitalised to continue lending to creditworthy households and businesses in a severe but plausible macroeconomic stress, with significant headroom over hurdle rates in aggregate at the low point of the test”.
It said: “Most of this headroom is accounted for by the fact that banks start the test with capital in excess of regulatory requirements and buffers.”
Katie Murray, CFO at NatWest, said: “This exercise has highlighted again the strength of NatWest Group’s balance sheet, delivering sustainable value creation and strong distributions for shareholders.
“The results also reflect the continued strengthening of our balance sheet since the 2022/23 Stress Test, underpinning our ability to support our customers and the broader economy, including under a severe stress scenario.”
The central bank found that Nationwide’s minimum CET1 capital ratio was 14.5%, which it said was “comfortably above” the Bank of England’s requirement.
Lloyds Banking Group announced that it also “comfortably passed” the assessment but said since the date of the stress test, which was based on a balance sheet date of 31 December 2024, it had taken “significant further provision for the potential impact of motor finance [compensation]”.
Meanwhile, Barclays said it would be “sufficiently capitalised” for the duration of the scenario.
