European banks won’t face stress tests this year because they are already improving their balance sheets in response to lower sovereign-debt values, the region’s top regulator for lenders said.
Banks plan to boost capital by about 98 billion euros ($130 billion), 26 percent more than the European Banking Authority originally wanted, the agency said in on its website yesterday. The regulator excluded from the group Greek lenders and some banks in the midst of restructuring. It also said that, while 77 percent of the capital would be raised by “direct” measures such as retaining profits and dividends, the rest will come from changing how banks measure risk on their liabilities.
“This says more about the headwinds that banks are expecting from the sovereign crisis,” Bob Penn, a regulatory lawyer at Allen & Overy LLP, said in a telephone interview. “If they’re girding loins for war, then that will be reflected in more conservative capital planning.”
The EBA excluded all Greek banks, Dexia SA, Austria’s Oesterreichische Volksbanken AG, and Germany’s WestLB AG from the most recent calculations because they are restructuring their businesses or already under obligations tied to receiving money from the International Monetary Fund.
The EBA had told European banks to raise 114.7 billion euros in fresh capital in December to respond to the sharp fall in the value of securities issued by euro-area governments. The agency also required banks to keep a core Tier-1 capital ratio of 9 percent and hold additional reserves, called a sovereign buffer, to protect against default on debt tied to weaker euro-area economies.
The measures would result in banks reducing lending to the real economy by “less than 1 percent of the total amount” of capital raised, the EBA said yesterday.
“Capital plans may be challenged and in some cases revised,” the EBA said in the statement, following a London meeting of the 27 national banking supervisors in the European Union. “If earning forecasts or other assumptions look optimistic, back-up plans will be requested.”
Banks submitted plans to raise capital in January. The EBA has said lenders aren’t allowed to reduce lending to reach the capital-ratio goals. Groups of financial supervisors are to have further meetings this month to evaluate and formally approve the plans.
Commerzbank AG, Germany’s second-largest lender, rose 15 percent on Jan. 19 after the bank said it’s more than halfway to reaching a 5.3 billion-euro capital goal without resorting to government aid.
Banco Santander SA, Spain’s biggest bank, was required to plug a 15.3 billion-euro shortfall. Santander said Jan. 9 it met EBA’s requirements by selling stakes in South American lenders, issuing new stock in exchange for preferred equity and paying dividends in shares.