By George Psyllides
THE eurozone’s 130 biggest banks, which include four Cyprus-based banks, received the European Central Bank’ s final verdict on their finances on Thursday after a review aimed at drawing a line under persistent doubts about the health of the region’s banking sector.
Taking part from Cyprus is the Bank of Cyprus (BoC), the co-op sector, Hellenic Bank, and the Russian Commercial Bank.
The results will not be made public officially before 1pm on Sunday, and the ECB has asked banks not to make any disclosures until then.
The ECB’s assessment, which is designed to allow the central bank to take over with a clean sheet when it becomes the euro zone’s banking supervisor on November 4, is based on the banks’ financial positions at the end of 2013.
The banks have strengthened their balance sheets by almost €203 billion since mid 2013, the ECB says, which implies that several banks which failed are likely to have already raised cash to deal with any shortfall.
In Cyprus, Bank of Cyprus recently raised €1.0 billion in extra capital, while co-op banks tapped €1.5 billion provided through the island’s bailout programme.
An additional €1.0 billion is available through the programme for bank needs.
Hellenic Bank drew €100 million through convertible bonds in the first nine months of the year and has also announced it will go ahead with a rights issue for its existing shareholders.
The share capital increase will support the lender’s business plan and reinforce its Common Equity Tier 1.
Central Bank Governor Chrystalla Georghadji has said that she expected the results to be “manageable.”
Banks were tested under a baseline and an adverse scenario.
Any shortfalls under the baseline scenario must be covered within six months from the publication of the results. Banks have nine months to plug shortfalls under the adverse scenario.
The capital threshold in the baseline scenario is 8.0 per cent and 5.5 per cent in the adverse scenario.
They have 15 days from the publication to submit a plan.
Market estimates of how many banks will fail the tests, and who those failures will be, are diverse, but generally investors are expecting few failures and surprises, especially amongst household names.
JP Morgan said it was less likely that a major bank failed the test, but some second-tier lenders may have missed the mark.
“That would be a credible outcome,” said Roberto Henriques, European credit analyst at JP Morgan. “You show that you are strict and some banks fail, but guess what, these are technical failures and the banks have already dealt with their problems.”
Technical failures would be those banks that missed the capital requirements as of end-2013, but which have since raised sufficient capital to meet the ECB’s mark.
German cooperative mortgage lender Muenchener Hypothekenbank , for example, has already said it did not meet the capital requirement, but raised €400 million in July to make up for it. Austria’s part-nationalised lender Volksbanken AG has already said it would wind itself down to avoid a looming capital crunch that it was struggling to plug.
If banks that have raised money this year need more, market sources say they could raise it. “If you look at Monte Paschi and the Greek banks, they’ve all raised a lot of equity this year and attracted a lot of interest,” a London-based fund manager said on Wednesday.
“If they now need to top up by 1 or 2 billion each, which is probably a bear (worst) case, the market will give them that money … And you haven’t got much choice, quite frankly, if the alternative is to be wiped out.”
