RBS admits to error in stress-test calculation, capital ratio revised lower

The Royal Bank of Scotland has admitted to an error it made when calculating its capital ratio for the latest round of stress tests in Europe, saying it had "overstated" its estimated common equity tier-1 ratio (CET1).

In the published stress tests results by the European Banking Authority (EBA) in 26 October, RBS had originally stated that its 2016 CET1 under the modelled 'adverse scenario' was 6.7%, ahead of the minimum ratio requirement of 5.5%.

However, revisions to this number mean that the ratio was actually one whole percentage point less at 5.7%, just narrowly above the threshold.

The news prompted the bank's share price to drop sharply into the red on Friday afternoon before the close. By 16:29, the stock was down 0.9% at 377.3p, erasing earlier gains.

The bank explained: "Within its EBA calculations RBS correctly recognised tax relief on the theoretical stress losses incurred during the 2014-16 period.

"However, RBS's modelled capital deduction for its 'deferred tax asset did not adequately reflect these cumulative tax credits within the published capital template."