Banks from Italy, Ireland, Spain and Austria fared worst in the latest EU stress test, which the region’s banking watchdog on Friday said showed there was still work to do to boost credit to the bloc’s economy.
Eight years since the collapse of Lehman Brothers Holdings Inc 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.
“While a number of individual banks have clearly fared badly, the overall finding of the European Banking Authority (EBA) — that Europe’s banks are resilient to another crisis — is heartening,” Anthony Kruizinga at PricewaterhouseCoopers (PwC) said.
Italy’s Monte dei Paschi di Siena SpA, Austria’s Raiffeisen International Bank Holding AG, Spain’s Banco Popular Espanol SA and two of Ireland’s main banks came out with the worst results in the EBA’s test of 51 EU lenders.
“Whilst we recognize the extensive capital raising done so far, this is not a clean bill of health,” EBA chairman Andrea Enria said in a statement. “There remains work to do.”
Italy’s largest lender, UniCredit SpA, was also among those banks which fared badly, and it said it will work with supervisors to see if it should take further measures.
Germany’s biggest banks, Deutsche Bank AG and Commerzbank AG, were also among the 12 weakest banks in the test, along with British rival Barclays PLC.
The EBA looked at how banks could withstand a three-year theoretical economic shock which ended with the Italian lender, the world’s oldest, having a core equity capital ratio of minus-2.44 percent.
This was the third stress test in the EU since taxpayers had to bail out lenders in the 2007-2009 financial crisis, with no pass or fail mark this time round. The test involved scenarios including EU economic output 7.1 percent below the baseline over the next three years and a 20 percent drop in interest income.
“Based on these results European banks do have deeper loss absorbing capacity than previously, but concerns clearly remain around profitability and the appetite of equity investors to invest in bank stocks,” KPMG’s Steven Hall said.
Of the banks tested, 37 are based in the eurozone and supervised by the European Central Bank, which said the results reflected progress in repairing balance sheets.
“The banking sector today is more resilient and can much better absorb economic shocks than two years ago,” said Daniele Nouy, who heads supervision at the central bank.
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