ECB Finds $1.87 Billion Capital Gap in Stress Test of Nine Banks

  • Shortfall of 1.4 billion euros found at Portugal's Novo Banco
  • ECB says other banks have already raised necessary funds

The European Central Bank found capital gaps totaling 1.74 billion euros ($1.87 billion) among nine lenders it tested, with the biggest hole at Portugal’s Novo Banco SA.

“Shortfalls amount to 1.74 billion euros resulting from CET1 ratios falling below the threshold of 5.5 percent in the adverse stress-test scenario, after including impact of asset quality review,” the ECB said in a statement on its website on Saturday. “Banks will be required to address remaining shortfalls in a timely manner by issuing capital instruments or undertaking other eligible measures to restore their capital positions to the required levels.”

The participating banks were Banque Degroof SA, Agence Française de Développement, J.P. Morgan Bank Luxembourg SA, Mediterranean Bank Plc, Sberbank Europe AG, VTB Bank (Austria) AG, UniCredit Banka Slovenija dd, Kuntarahoitus Oyj Plc, and Novo Banco.

Four of the five banks at which shortfalls were identified have already covered the gaps by measures including capital raising, the ECB said. They were AFD, Mediterranean Bank, Sberbank and VTB.

Eight of the lenders were subject to an asset-quality review and stress test similar to a major exercise conducted in 2014. They were tested this year because they met the criteria for assessment by the ECB after January 1, 2014. Novo Banco, the company that emerged from the breakup of Banco Espirito Santo SA, was subject only to a stress test as it completed the asset review in the previous exercise.

“The AQR was a point-in-time assessment of the carrying values of banks’ assets as at 31 December 2014,” the ECB said. “It resulted in aggregate adjustments to carrying values of 453 million euros across all participating banks, largely stemming from the identification of additional non-performing exposures and increases in specific and collective provision levels.”

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