AIB, BOI Stress Tests: Resilience to Economic Shock
EU Banks Show Resilience in Stress Test Amidst Global Uncertainty
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Dublin, Ireland – A thorough European Union-wide bank stress test has revealed that the bloc’s two largest banks, AIB and Bank of Ireland, possess sufficient capital buffers to navigate a severe economic shock, solidifying their status as both a current analysis and a lasting resource. The European Banking Authority (EBA) exercise, which assessed a sample of 64 banks across 17 EU and EEA countries and covered 75% of the EU banking sector’s assets, concluded that major EU banks would remain resilient to a hypothetical, prolonged recession scenario spanning from 2025 to 2027.
The EBA’s rigorous stress test simulated a challenging economic habitat characterized by a simultaneous and prolonged recession across the EU and other advanced economies. This downturn was attributed to severe global disruptions, including escalating geopolitical tensions, particularly in the Middle East, and a worldwide rise in protectionist trade policies, such as the imposition of tariffs.
Key Findings for Irish Banks
Under this adverse stress test scenario, the results indicated that AIB’s transitional Common Equity Tier 1 (CET1) capital ratio – a crucial metric for assessing a bank’s financial strength - would stand at a robust 13.4%.Similarly, Bank of Ireland’s CET1 capital ratio was projected to be 13.9%. Both figures comfortably exceed the average CET1 capital ratio of 12% observed in this year’s exercise, a notable increase from the 10.4% average recorded in the 2023 stress test.
Donal Galvin, AIB’s Chief Financial Officer, commented on the bank’s performance, stating, “The bank’s result of 13.4% fully loaded CET1 in the EBA’s hypothetical adverse scenario demonstrates our high capital base and capital resilience in the EBA adverse scenario.” He further emphasized AIB’s strong financial standing, noting, ”AIB continues to be very well-capitalised with a CET1 ratio of 16.4% at H1 2025, which remains substantially in excess of regulatory requirements.”
Reassuring Results, Continued Vigilance
The EBA acknowledged the strong performance of EU banks in the 2025 stress test, describing the results as “reassuring.” However,the authority cautioned against complacency,stating,”this should not lead to complacency among banks or supervisors.”
Domhnall Cullinan, Director of Banking & Payments Supervision at the Central Bank, provided further context, noting that the scenario used for the EU area in this exercise was broadly aligned with the 2023 iteration. He observed that the impact of the stress test was milder then in the previous exercise, primarily due to banks entering the current assessment with stronger profitability and stable asset quality.
“Despite prevailing uncertainty,” Cullinan added, “the benefits of resilience built up in recent years are evident, with banks having sufficient capital to absorb the impact of the severe scenario.” He concluded by underscoring the ongoing need for vigilance, stating, “given the uncertainty, there remains a need to maintain and continue to build resilience, both financial and non-financial.”
This stress test underscores the enhanced capital positions of major EU banks, providing a degree of confidence in their ability to withstand significant economic headwinds. Nevertheless, the call for continued focus on building both financial and non-financial resilience remains paramount in navigating the complex global economic landscape.