Italian Banca Monte dei Paschi di Siena (BMPS) and Irish Allied Irish Banks were the most problematic banks of the European Union, showed the stress tests of the European banking administration (EBA), one of the EU financial regulators. Their core capital adequacy ratio of Tier 1 (CET1) based on the total may fall in 2018 below the level required by regulators to 4,5%.
In the Irish Allied Irish Banks CET1 may be reduced to 4.3% and the Italian BMPS, the oldest bank in the world, and all go into the negative plane – to minus 2.44%. This figure is considered to be a key in determining the ability of banks to withstand shocks
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However, this will happen only if the adverse scenario of economic development: the recession in 2016-2017 at 1.2 and 1.3%, respectively, weak GDP growth of 0.7% in 2018 and the continuing decline in oil prices.
in the case of the baseline scenario of economic development based on the macroeconomic forecast of the European Commission until 2018, all European banks that participated in the stress test, CET1 was at an acceptable level, exceeding 4,5%.
in particular, this figure in the Italian BMPS remain at an acceptable level in 12.24%, and the Irish Allied Irish Banks will be 13,90%.
stress test results EBA published one hour before midnight on July 29.
The study involved 51 banks from 15 countries of the European Union and the European economic area, accounting for 70% of assets falls Union banking system. It is interesting that in the stress test in 2016 did not participate any bank in Greece or Portugal.
In contrast to the stress tests in 2014, when communicating strap capital adequacy 5 has been set, 5% in the current study, there was no evaluation of the “pass / fail”. Stress test did not result in any regulatory decisions, but only shows the various options for the development of the banking industry and is a kind of a thought.
In other banks, which were included in the top ten with the lowest level of this indicator became Austrian Raiffeisen (6.12%), the Irish Bank of Ireland (6,15%), the Spanish Banco Popular (6,62%), the Italian Unicredit (7,1%), the British Barclays (7,3%), German at Commerzbank (7 , 42%), French Socete Generale (7,5%), German Deutsche Bank (7,8%), Spanish Criteria Caixa (7,81%) and the Austrian Erste Group (8,02%).
The total amount of non-performing loans of all participants stress -test exceeded € 1 trillion.
«This is a big figure,” – concluded the chairman of the EBA Andrea Enria before the publication of research results. One third (360 billion) of all EU defaulted loans accounted for Italy.
«The level has already started to decline in all countries. But the pace of adjustment. Is it enough to quickly we reduce them? If you do it too fast, there is a problem of large-scale asset sales and deadlock capital increase, and if you do it too slow, then the banks will not lend to remain unprofitable for a long time. »
Deutsche Bank will avoid collapse
One of the banks, the results of stress tests which attracted the attention of investors, was a German Deutsche Bank. Recently its US subsidiary has not passed the stress test of the Federal Reserve. And in the report of the IMF’s assessment of the stability of the financial sector, released in June of this year, it states that among the largest banks is from Deutsche Bank are based on the greatest risks to global finance.
The flames were fanned commodity traders catapulted the hearing, that Deutsche Bank on the balance sheet derivatives whether in the $ 42 trillion, or to $ 73 trillion.
Since the beginning of its shares year fell by 46%, this is largely due the possible impact of the UK exit from the EU.
But the stress tests showed the allowable level of capital adequacy Deutsche Bank even if the adverse scenario. The markets immediately reacted to these reports: after the close of trading the shares of the bank rose by 1,5%
«Results from major banks, including Deutsche Bank and of UniCredit, were better than expected,” – he said. in conversation with Bloomberg professor at the University of Bocconi in Milan by Carlo Alberto Carnevale Maffei. “It is disturbing only BMPS, which requires urgent measures to replenish capital»
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Italian crisis
The results of stress tests have shown that the greatest risk, as suggested earlier, comes from the Italian banking sector.
bank Monte dei Paschi di Siena was the only financial and credit institution capital adequacy which will go into negative territory under the adverse scenario of economic development.
About BMPS problem has been known for a long time. Like other banks in Italy, he was suffering from a large number of defaulted loans, consisting mainly of mortgage and loans to small and medium-sized enterprises – the main actors of the Italian economy. Since the beginning of the bank’s shares fell nearly 77%.
The profitability of Italian banks for a long time was the worst in Europe because of the very large number of employees and extensive branch networks. All this prevented find enough funds to cover the problem of arrears in the absence of the strict credit scoring procedures
Another weakness of the Italian banking sector -. The court system. Often, collateral for the loan serves home business owner or the company itself, but due to the complex legal procedures the bank can not recover the deposit for several years, until a decade
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Solve a problem with the recapitalization of the bank could have massive infusion of public money, but after the Cyprus crisis, the EU in 2014 year passed a law that limits the ability of the state to help the banks and requires that investors and depositors also share the burden of the debt burden of a financial organization.
«The results of stress tests of banks show that there are still banks in the European Union, which still do not do their homework. This applies in particular to the Italian financial institutions “, – says Wolfgang Steiger, general secretary of the Christian Democratic Union of Germany, which is chaired by Chancellor Angela Merkel, Bloomberg reports
In just a few hours before the publication of the stress test results. Italian Banca Monte dei Paschi di Siena announced the adoption of the recovery plan, involves the sale of a package of non-performing loans amounting to € 28 billion and € 5 billion in attracting additional capital through the placement of shares or hybrid securities.
