About a third of the euro area banks may have to raise capital to pass stress tests of the European Central Bank (ECB) and the European Management Committee, according to Ernst & Young’s survey. German banks are the most confident about their stability, while Spain’s financial institutions are the least sure.
About one third of the eurozone lenders reckon they may need capital raising to cover bad debt. Banks in Spain and Austria are most likely to raise provisions. At the same time, according to the poll, most European bankers expect their pay to remain relatively level, but 28% expect pay to increase.
The ECB said that those banks which fail to pass stress tests will have six months to raise new capital, for instance by retaining profits or selling shares.
Since the start of the year, EU banks have already raised a total of $35 billion of equity. The ECB holds stress tests regularly. The regulator holds this so-called asset-quality review to figure out how banks are prepared to difficult situations. Among possible shocks, there are investors’ aversion to emerging markets, the scaling back of financial reforms in countries with economic problems, and threats to bank balance sheets.
The main threat to the European financial system stability, according to the ECB, is a sharp hike of obligation rates worldwide. Forecasts on developing markets are worsening partially due to tensions between Russia and Ukraine.
