FRANKFURT: Roughly one in five of the eurozone’s top lenders failed landmark health checks at the end of last year but most have since repaired their finances, the European Central Bank said yesterday.
Painting a brighter picture than had been expected, the ECB found the biggest problems in Italy, Cyprus and Greece but concluded that banks’ capital holes had since chiefly been plugged, leaving only a modest €10bn to be raised. Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.
The test, designed to mark a clean start before the ECB takes on supervision of the banks next month, said Monte dei Paschi had the largest capital hole to fill at €2.1bn. The exercise provides the clearest picture yet of the health of the eurozone’s banks more than seven years after the eruption of a financial crisis that almost bankrupted a handful of countries and threatened to fracture the currency bloc.
While 25 of the eurozone’s 130 biggest banks failed the health check at the end of last year with a total capital shortfall of €25bn, a dozen have already raised €15bn this year to make repairs.
A recent investor survey by Goldman Sachs found they believed the ECB ought to ask lenders to raise an additional €51bn of capital for the tests to be credible. Although investors may take heart, it remains to be seen whether the exercise can spur banks to lend more as the region’s economic growth stutters to a virtual halt.
European Central Bank Vice President Vitor Constancio said the results could encourage banks to lend. “There is some pick up (in demand), but it is still slight,” Constancio said. “All this now can really start to change the environment and we hope it will also change the reality.”
Alongside Italy, regulators said three Greek banks, three Cypriots, two from both Belgium and Slovenia, and one each from France, Germany, Austria, Ireland and Portugal had also missed the grade as of end-2013.
Analysts generally gave the results a cautious welcome, saying they marked the beginning rather than the end of a banking clean-up in Europe. “I consider the stress test as an important partial success, which will help reduce uncertainty,” said Marcel Fratzscher, president of Germany’s DIW economic institute. “However, important challenges remain unsolved. The stress test alone will not end the credit crunch for small and mid-sized companies in Southern Europe.”
Some were more critical. “This seems as if it has been pretty unstressful,” said Karl Whelan, an economist with University College Dublin.
“The real issue is the size of the capital shortfall and that is very, very small. I don’t feel a whole lot more reassured about the health of the banking system today than last week.”
The exercise nonetheless provided a snapshot of banks’ vital statistics and forced them, for example, to revise the amount of risky loans — which have not been serviced in 90 days — upwards by €136bn to €879bn. The exercise, which saw officials trawl through more than 40 million individual bank figures, had two parts – a strict review by the ECB of assets such as loans, followed by a wider test of how banks would cope with a new economic crash.
It is the fourth attempt by Europe to clean the stables of its financial sector and has been billed as much the most rigorous.
Reuters
