S&P Says ECB’s Review of Banks to Have ‘Limited’ Effect

The European Central Bank’s review of the quality of lenders’ assets will have a “limited” effect on credit ratings because banks have enough time to strengthen capital, according to Standard & Poor’s.

“Banks have time to continue improving their regulatory capital positions to be able to mitigate any vulnerabilities,” S&P analysts, including London-based Osman Sattar, said in the report today. “We do not anticipate changing ratings if the asset quality review and stress test reveal capital shortfalls for banks, where we already assess capital and asset quality as a negative-rating factor.”

The ECB, which starts supervising euro-area banks in November, will assess the health of more than 120 banks through a three-step examination, including an asset-quality review and a stress test. S&P rates 79 of the banks reviewed by the ECB.

The ECB’s assessment may reveal “additional fragilities,” according to S&P. “This may include previously unidentified weaknesses” in some banks’ recognition of losses and collateral valuations, “which could lead to a ratings review,” S&P said.

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