Tuesday May 26, 2015 Search
Weather | Athens
14o C
09o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
EU banks face homes slump in bleakest stress-test scenario

European Union banks will be ranked on how well they can withstand a 21.2 percent slump in home values, coupled with a surge in unemployment and plummeting economic growth, as part of the bleakest scenario in the most severe EU stress test to date.

The exams will also simulate a 19.2 percent drop in stock prices over three years, as well as a 14.7 percent fall in commercial real-estate prices across the 28-nation EU, the European Banking Authority said in a statement. The Hungarian forint and Polish zloty will lose a quarter of their value under the so-called adverse scenario to express losses on mortgage lending in central and eastern Europe.

As the European Central Bank prepares to take over supervision of about 130 euro-area lenders from BNP Paribas SA to National Bank of Greece SA starting in November, regulators have sought to compile the toughest stress tests in a bid to repair credibility damaged by assessments in 2010 and 2011 that didn’t uncover weaknesses at banks that later failed.

“The exercise’s full transparency will be key to its credibility,” Andrea Enria, chairman of the EBA, said in the statement. The tests will form a “robust and effective tool for supervisors to address remaining vulnerabilities in the EU.”

The exams will simulate output that misses the European Commission’s growth forecasts in 2014 through 2016 by a cumulative 7 percentage points with a corresponding rise in unemployment to 13 percent and stagnant consumer prices.

The scenarios address criticisms of the 2011 test, which modeled the effect of a fall in output of 0.4 percent that year, followed by a year of static growth in 2012. The adverse scenarios then were overtaken by reality a year later. Economic activity fell 0.4 percent in 2012, according to data compiled by Eurostat.

The exercise, which will examine a sample of 124 banks that cover more than half of each EU member state’s banking industry, is scheduled to begin about the end of May, while results will be published at the end of October.

It will form the last part of ECB President Mario Draghi’s effort to stamp out lingering doubts about the health of the region’s lenders before his institution becomes the euro-area’s prime bank supervisor.

“It is possible that the level of stress within these tests is insufficient to fully restore the credibility that the ECB is seeking to build,” Folkert Jan van der Veer, a senior analyst at asset manager Cairn Capital, said in an e-mail. “Even though the ultimate stress test scenarios may lack severity, there is already clear evidence that the stress tests are bearing fruit, with banks actively building capital levels and provisions.”

The adverse scenario is designed to undershoot EU growth and unemployment forecasts, which make up the so-called baseline scenario, to simulate financial stress and help banks identify where they could be most vulnerable.

As a pass-mark for the baseline scenario banks have to be able to maintain a capital-to-risk-weighted-assets ratio of 8 percent. In the adverse scenario, where lenders are allowed to run down capital buffers, the ratio is 5.5 percent.

The 5.5 percent hurdle is “very low in our view,” Van der Veer said. “Investors should question whether a bank falling short of the hurdle rate would have any options left to raise capital independently.”

Although EU banks haven’t had to face a public bloc-wide stress test in three years, the EBA told them in 2012 to hold on to more than 200 billion euros ($277.4 billion) in capital raised in response to concerns about the quality of their European sovereign bond portfolios and how deeply they were hit by the economic crises in countries such as Greece and Spain.

Sovereign bonds won’t escape scrutiny. The adverse scenario tests for a government debt yield hike of about 150 basis points over 2014 and around 110 basis points in 2015 and 2016, averaged out across the EU.

The European Systemic Risk Board, a group comprised of EU central bankers, devised an adverse scenario that “reflects the systemic risks that are currently assessed as representing the most pertinent threats to the stability of the EU banking sector,” the EBA said in the statement.

[Bloomberg]

ekathimerini.com , Tuesday April 29, 2014 (13:19)  
Third-country tourists posted major increase up to 2014
Firms write off a tenth of turnover in bad debts
Counter-incentives against early retirement
Halt in payments stifles market
Ranks of civil service shrink, but not for long
The size of the Greek civil service dipped in the first quarter of the year, continuing the downward trend that started in 2009, but it is expected to grow again, as the government has pledg...
Debt talks resume amid concerns over differences, looming repayment, political upheaval
Government officials on Monday expressed confidence that Greece was close to a deal with creditors that would allow loans to be unlocked but pressure is growing on Prime Minister Alexis Tsip...
Inside News
SOCCER
Berg brace gives Panathinaikos four-point lead
Panathinaikos beat Atromitos on Sunday and took advantage of the goalless draw between PAOK and Asteras Tripolis to open a four-point gap from PAOK at the top of the Super League play-off mi...
SOCCER
Reds add Cup to league trophy with 3-1 win over Xanthi
Olympiakos completed a league-and-cup double on Saturday by beating Xanthi 3-1 in the Greek Cup final at the Olympic Stadium of Athens, that was more balanced than the final score suggests. ...
Inside Sports
COMMENTARY
Greece needs a second election
Most scenarios facing Greece are bleak. The country could default, introduce capital controls, forcibly convert savers’ deposits into bank capital, quit the euro and so forth. But there is s...
COMMENTARY
No more ´quick and dirty´ fixes for Greece
International Monetary Fund Managing Director Christine Lagarde correctly said last week that the protracted negotiations between Greece and its official creditors required «a comprehensive ...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Third-country tourists posted major increase up to 2014
2. Firms write off a tenth of turnover in bad debts
3. Counter-incentives against early retirement
4. Halt in payments stifles market
5. Ranks of civil service shrink, but not for long
6. Debt talks resume amid concerns over differences, looming repayment, political upheaval
more news
Today
This Week
1. No more 'quick and dirty' fixes for Greece
2. ND's Bakoyannis fears capital controls over long weekend
3. Brussels Group talks to resume Tuesday with VAT, pension topping agenda
4. Greece calls on creditors to compromise as IMF payment nears
5. Greece needs a second election
6. Tourist dies in rockfall on beach in Crete
Today
This Week
1. Conspiracy madness
2. National self-awareness put to the test
3. Albanian demarche raises concerns about possible territorial claims over Greece
4. Why Greece won't hold referendum on reforms
5. Greek endgame nears for Tsipras as bank collateral hits buffers
6. Hotel contracts with a ‘Greek default clause’
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2015, H KAΘHMEPINH All Rights Reserved.