LONDON: Britain’s seven biggest lenders will have to show they can cope with a global economic slump triggered by a sharp slowdown in China and a crash in the eurozone in this year’s round of stress tests conducted by the Bank of England (BoE).

Britain decided to introduce annual stress tests for its banks after the 2007-09 financial crisis which required taxpayers to pump 66 billion pounds ($98bn) into Royal Bank of Scotland and Lloyds Banking Group.

“By assessing the resilience of the UK banking system against a major external shock we will improve further our ability to identify vulnerabilities and we will ensure that banks have plans in place to address a wider range of possible stresses,” BoE Governor Mark Carney said on Monday.

The Bank also said the Co-operative Bank, which failed last year’s tests and is deep in a restructuring programme, would not be assessed as it is now too small.

That leaves six banks and one mutual lender to face this year’s tests — Barclays, HSBC, Standard Chartered, RBS, Nationwide Building Society, Santander UK and Lloyds.

The global downturn scenario which the lenders will have to prove they could survive includes various financial shocks such as a contraction of more than 2 per cent in the eurozone economy but not a Greek exit.

It also sets out the prospect of a slowdown in economic growth in China to 1.7pc of GDP by the end of this year, tipping Hong Kong into a deep recession. That would cause a 40pc slump in Hong Kong property prices, hitting some British lenders such as HSBC. Commodities would also take a hit with the oil price troughing at $38 a barrel.

Last year’s tests, in which the Co-op was the only one to fail, largely focused on a 35pc crash in UK housing prices amid concerns at the time that the British property market was in danger of overheating to the point of creating a bubble.

In the 2015 tests, the British house price fall has been set at 20pc over the five-year scenario period, the BoE said.

The UK-specific focus last year caused some critics to say HSBC and Standard Chartered got off lightly. Both banks already face pressure from some investors to relocate many UK operations to Asia after a jump in UK bank taxes.

HSBC, 40pc of whose assets are in Asia on a risk-weighted basis, had no comment on Monday. StanChart, with 59pc of its risk-weighted loans in Asia, said it would examine the details.

Published in Dawn, March 31st, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play