Italian Bank Monte Paschi fared worse in the stress tests with its fully-loaded CET1 dropping to -2.44%.
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Eight years since the collapse of Lehman Brothers sparked a global banking meltdown, many of Europe’s banks are still saddled with billions of euros in poorly performing loans, crimping their ability to lend and putting off investors.
Germany’s biggest banks, Deutsche Bank and Commerzbank, were among the 12 weakest banks as measured by a key indicator: The ratio of common equity Tier 1 capital (CET1) to total risk-weighted assets.
“Whilst we recognise the extensive capital raising done so far, this is not a clean bill of health”, EBA Chairman Andrea Enria said in a statement.
The spotlight is on Italy’s troubled banks as regulators prepare to release the results Friday of stress tests of European Union lenders that will show how much money the country’s financial sector, the most troubled in the region, needs to avoid rekindling a eurozone crisis. “There remains work to do, which supervisors will undertake”.
In a previous round of stress tests completed last year, the EBA had put 5.5 percent as the minimum CET1 ratio threshold a bank should stay above, though this year it didn’t set any such threshold, saying that each bank’s portfolio had to be judged in light of its particular risks.
Deutsche Bank AG, whose capital levels are being closely scrutinized, had a 7.8% capital level.
The six banks that fell into both camps were Allied Irish Bank, Bank of Ireland, Barclays, Commerzbank, Monte dei Paschi di Siena and Raiffeisen Landesbanken. This is a typical level for triggering the writedown of bonds issued by banks to replenish capital. “We do have the contingency plans in place to cope with those situations”, he said.
Popular earlier said that it had fired its chief executive Francisco Gomez after its profit was almost wiped out in the second quarter.
Deutsche Bank AG scored higher in the European Banking Authority’s stress test this year than in 2014 in a sign that steps to bolster financial resilience are taking hold despite a tougher examination that took account of surging litigation costs. The ECB said that banks are better able to absorb economic shocks than in the 2014 assessment.
The European Central Bank, which supervises 37 of the lenders in the test, has said it will use a 5.5 per cent ratio in the stressed scenario as an informal benchmark for lenders’ resilience.
Its capital ratios fall by more than seven percentage points under the tests imposed by the European Banking Authority and, under the imaginary scenario, ends up with an 8% capital ratio.
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The CEO of Monte dei Paschi, Fabrizio Viola, said that the bank would assess in the coming months whether the need for the capital increase would be less than the 5 billion euros now fixed.
