The European Banking Authority (EBA) has launched its most stringent bank stress tests to date, with geopolitical risks playing a more significant role in determining banks’ resilience.
The tests will examine banks under two scenarios, with the adverse scenario projecting a cumulative 6.3 percent drop in EU GDP amidst heightened geopolitical tensions and persistent trade disruptions.
“This year’s exercise is designed to assess the European banking sector’s resilience in the current uncertain and volatile macroeconomic environment”, the EBA said in a statement.
Separately, the European Central Bank (ECB) will conduct its own stress tests on 45 medium-sized banks, including Bank of Cyprus.
Eurobank will be exempt from the Greek stress tests due to its ongoing merger with Hellenic Bank and planned consolidation with Eurobank Cyprus in 2025.
For Cyprus, the adverse scenario projects negative growth in 2025 (-2.4 percent) and 2026 (-4.7 percent), followed by a modest recovery of 0.7 percent in 2027. The baseline scenario forecasts growth of 3 percent annually through 2027.
The tests also forecast significant impacts on unemployment and property prices. Under the adverse scenario, Cypriot unemployment could reach 11.8 percent by 2027, while residential property prices could fall by 9.5 percent in 2026.
The ECB plans to publish results for both stress tests in early August 2025.
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