Two biggest banks need to come up with €3.53b

THE EUROPEAN Banking Authority (EBA) said yesterday the island’s two biggest banks would have to raise €3.53 billion as part of a broader European package agreed in October to address the current situation in the EU by restoring stability and confidence to the markets.

The October 26 agreement requires banks to strengthen their capital positions by building up a temporary capital buffer against sovereign debt exposures to reflect current market prices.

Banks must also hold a core Tier 1 capital ratio of 9.0 per cent by the end of June next year.

“The capital to be raised and measures to be taken by the banks are designed to restore confidence in market participants, to facilitate banks’ access to the funding markets as well as to put them in the condition to continue providing financial support to the real economy,” the Central Bank of Cyprus said.

Marfin Popular Bank said the additional capital it needed was €1.97 billion.

The bank said it will set out a comprehensive capital enhancement plan to the Central Bank by January 20 to reduce the shortfall to zero by the end of June 2012.

This buffer would not be designed to cover losses in sovereigns but to provide a reassurance to markets about banks’ ability to withstand a range of shocks and still maintain adequate capital.

In a statement released last night, the Bank of Cyprus said the EBA estimate on its required additional capital to reach Core Tier 1 ratio of 9 per cent was €1.56 billion.

The bank said it has in issue €887 million in convertible enhanced capital securities which are part of Tier 1, Basel III compliant and with loss-absorbing characteristics.

Taking that into account, the remaining capital shortfall based on the EBA’s estimate is €673 million, the bank said. The BoC added it was in a position to cover a €673 million euro shortfall through the completion of a rights issue, internal profit generation and other actions including efficient management of risk-weighted assets.

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