• Marfin Popular Bank has successfully passed the EU-wide stress test
• 5.3% stress test result under the adverse scenario for 2012 and  5.6% after the already completed disposal of the Australian subsidiary
• 9.2% stress test result including mitigating measures as reported in EBA endorsed templates
• 10% stress test result after the implementation of the bank’s medium term plan
• The Bank has not participated in any Government support program in the form of capital enhancing measures

Marfin Popular Bank was subject to the 2011 EU-wide stress test conducted by the European Banking Authority (EBA), in cooperation with the Central Bank of Cyprus, the European Central Bank (ECB), the European Commission (EC) and the European Systemic Risk Board (ESRB).

Marfin Popular Bank notes the announcements made today by the EBA, the Central Bank of Cyprus and the Ministry for Finance on the EU-wide stress test and fully acknowledges the outcomes of this exercise. 

The EU-wide stress test, carried out across 91 banks covering over 65% of the EU banking system total assets, seeks to assess the resilience of European banks to severe shocks and their specific solvency to hypothetical stress events under certain restrictive conditions.

The assumptions and methodology were established to assess banks’ capital adequacy against a 5% Core Tier 1 ratio capital benchmark and are intended to restore confidence in the resilience of the banks tested.  The adverse stress test scenario was set by the ECB and covers a two-year time horizon (2011-2012). The stress test has been carried out using a static balance sheet assumption as at December 2010. The stress test does not take into account future business strategies and management actions and is not a forecast of Marfin Popular Bank’s profits.

As a result of the assumed shock, the estimated consolidated Core Tier 1 ratio of Marfin Popular Bank would change to 5.3% under the adverse scenario in 2012 and 5.6% after the already completed disposal of the Australian subsidiary, compared to a reported Core Tier 1 ratio of 7.3% as of end December 2010 and 9.4% as of end of March 2011. After including the mitigating measures as reported in the EBA endorsed results, the Core Tier 1 ratio of the bank increases to 9.2%.

These mitigating measures relate to:

• the already completed disposal of the bank’s Australia subsidiary in the first quarter of 2011.
• the issuance of Capital Securities with triggers for mandatory conversion into common equity expected to be completed by 22 July 2011.
• the exchange of the existing Capital Securities of €738m into Basel III compliant Tier 1 instruments with triggers for mandatory conversion into equity.

Furthermore the bank is implementing a medium term plan with a view to further strengthen its solvency position. This is expected to materially improve the bank’s resilience under an adverse scenario such as the one assumed by EBA in the current EU-Wide stress test exercise. This plan builds upon the following two pillars:

• Marfin Popular Bank is a net lender in the interbank market.  As part of its liquidity management operations, the Bank places part of its liquidity with other financial institutions on a very short term basis.  Under the adverse scenario of the EU-wide stress test, exposures to institutions have been subject to rating downgrades leading to an additional capital charge for Marfin Popular Bank with a 70bps impact on its Core Tier 1 ratio using a two year probability of default. The elimination of this capital charge would bring the bank’s Core Tier 1 ratio, post the Australian disposal, to 6.3% under the adverse scenario in 2012.
• The Group has scope to improve its balance sheet structure with a view to further strengthen its solvency position. That will be implemented through a program of risk weighted asset reduction estimated to reach €1bn by December 2011 and €2bn by June 2012.  This plan should lead to an improvement of 81bps of the bank’s Core Tier 1 ratio by the end of June 2012.

The EU-wide stress test requires that the results and weaknesses identified, which will be disclosed to the market, are acted on to improve the resilience of the financial system.  Following completion of the EU-wide stress test, the results determine that Marfin Popular Bank meets the capital benchmark set out for the purpose of the stress test.  The Bank will continue to ensure that appropriate capital levels are maintained, and as part of its capital management strategy the Bank is implementing the above mentioned additional capital enhancing measures.

As of June 2011, the Group’s total exposure to European sovereigns amounted to €3.9bn, out of which €2,843m are Greek Government Bonds, €380m are Greek government short-term instruments maturing in less than twelve months, €50 million are Irish sovereigns, with the balance comprising of other European sovereigns with no exposure to Portugal.

Notes to editors

The detailed results of the stress test under the baseline and adverse scenarios as well as information on Marfin Popular Bank credit exposures and exposures to central and local governments are provided in the accompanying disclosure tables based on the common format provided by the EBA.

The stress test was carried out based on the EBA common methodology and key common assumptions (e.g. constant balance sheet, uniform treatment of securitisation exposures) as published in the EBA Methodological note. Therefore, the information relative to the baseline scenarios is provided only for comparison purposes. Neither the baseline scenario nor the adverse scenario should in any way be construed as a bank's forecast or directly compared to bank's other published information.

See more details on the scenarios, assumptions and methodology on the EBA website: http://www.eba.europa.eu/EU-wide-stress-testing/2011.aspx