ECB Seen Reducing Volksbanken’s Capital RequirementAlexander Weber and Boris Groendahl
The European Central Bank may reduce the capital requirement it imposed on Austria’s cooperative lender Volksbanken-Verbund to reflect its sale of risky assets, according to a person with knowledge of the matter.
The ECB could recalculate the common equity Tier 1 ratio, a measurement of a bank’s core equity capital compared with its risk-weighted assets, before Volksbanken is required to meet the standard in July, said the person, who asked not to be identified because the procedure isn’t public.
The ECB ordered the banking group to increase its CET1 ratio to 14.6 percent by July 26, Volksbanken said late last year. That’s three percentage points more than it had at the end of September.
Volksbanken-Verbund, the combination of Oesterreichische Volksbanken AG and a group of regional banks that own it, failed the ECB’s stress test with an 865 million-euro ($1.02 billion) capital shortfall. The cooperative banks have been bailed out by the Austrian government three times since 2008, when their decade-long rapid expansion started to unravel.
Volksbanken can’t raise the capital by selling new stock because the group’s members aren’t listed; they’re owned by about 700,000 of their clients and by each other. The Austrian government, which has owned 43 percent of OeVAG since the last bailout in 2012, has said it won’t provide more support.
Volksbanken-Verbund is therefore accelerating asset sales and will spin off its central institution OeVAG as a wind-down vehicle this year to fill the gap. Its regional members are merging with each other to simplify the structure and cut costs.
OeVAG last month agreed to sell Volksbank Romania, the unprofitable lender that contributed to its failure in the ECB stress test. It expects to close the deal by June.
This and other asset sales weren’t reflected in the ECB’s original capital requirement, which was based on the end-2013 balance sheet. The recalculation should catch up with the new situation, according to the person. The requirement is part of the so-called supervisory review and evaluation process an analysis it will perform on each bank it supervises.
OeVAG spokeswoman Petra Roth declined to comment on regulatory measures. The ECB declined to comment on individual banks.