Dozens of Euro banks in need of more capital

Michael Bow
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NEARLY two dozen banks across Europe expect to raise more capital following central bank stress tests, an anonymous poll of lenders has found.

A total of 22 banks out of 294 said they would be required to boost their coffers after the Asset Quality Review (AQR) by the European Central Bank is finished, with a further 43 banks saying they may need to raise further capital, according to EY.

The results come amid alarm in eastern Europe after the Bulgarian government was forced to nationalise the country’s fourth biggest bank Corporate Commercial Bank on Friday following a run on the institution.

And stress tests of eastern European lenders could pile further pressure on the sector. A number of banks are propped up by lenders with their own concerns about raising new capital, which could leave eastern European lenders out in the cold.

The growing desire for fresh capital is stark, with $11bn raised between March and April by banks this year compared to $2bn in the same period in 2013. Banks have raised a total of $35bn this year in fresh capital – a 70 per cent increase on last year, according to Thomson Reuters.

One in three of the banks polled by EY say they cannot rule out the need to go cap in hand to investors.

Spanish banks were the least confident with 35 per cent expecting to have to raise more. German banks were the most confident; four per cent said they expected to have to raise money.

“Stronger banks are expecting their financial performance to improve and to be able to increase lending and pay this year as a result, while the weaker banks are still concerned about capital levels,” EY’s Steven Lewis said.

“We have already seen significant pre-emptive capital raising in the market. With such a high number of banks considering coming to the market for more capital in quarter three and quarter four, this looks to have been a wise move.”

The AQR is due for completion in October.