Lloyds Banking Group's share price fell two per cent on Monday trading, with analysts warning it could yet fail the Bank of England's more stringent stress test.
The European Banking Authority had tested 123 banks’ capital buffers against a fictional crash, with a jump in unemployment, a renewed recession and falling house prices. Banks had to retain a minimum equity tier one ratio of 5.5 per cent to pass the stress test.
While the UK's big four – Barclays, Lloyds, RBS and HSBC – all passed, Lloyds emerged as the weakest, with a ratio of 6.2 per cent.
That has put Lloyds in the spotlight for the next round of stress tests, some analysts warned.
Soc Gen analysts meanwhile argued the European test “gives the impression of being a relatively lightweight exercise”.
The Bank of England said the EBA results “should not be interpreted as indicative of the UK results”.
However Lloyds was upbeat. “This strong position reflects the steps taken by the group’s management over the last three years to return its balance sheet to a robust position, and we will continue to use this strong basis to help Britain prosper,” said a spokesperson.
British banks have fared better than some of their European counterparts, notably Italy's third largest -and the world's oldest – Banca Monte dei Paschi di Siena, which had trading in its shares suspended after the share price plummeted more than 15 per cent.