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Honohan Says Banks May Have Enough Capital for Stress Tests

Ireland’s banks may not need more capital as a result of stress tests later this year, central bank Governor Patrick Honohan said.

“At this stage I don’t see that they would” need more capital, Honohan said in an interview before a speech in Dublin yesterday. He said he couldn’t guarantee banks wouldn’t need more, since capital adequacy depends on the design and severity of the tests to be carried out in Europe later this year.

Ireland has injected about 64 billion euros ($89 billion) into its financial system in the wake of the worst real estate crash in Western Europe. Morgan Kelly, an economics professor at University College Dublin who is dubbed Ireland’s Doctor Doom, said last week that banks faced a new wave of losses on loans to small and medium-sized companies.

Kelly said that the European Central Bank may force Irish banks to take a harder line on small and medium-sized businesses defaulting on loans, which poses what he called an “existential” threat to the nation’s economy.

“No one is out to get Ireland” Honohan told reporters, adding that it wouldn’t make sense for the ECB to single any country out.

Honohan said in the interview that while he’s not complacent about lending to SMEs, concerns about conserving capital before upcoming stress tests aren’t constraining lending.

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