Two Greek lenders fail stress test

ATEbank and Eurobank EFG failed the pan-European stress tests, the Bank of Greece stated on Friday. The other six Greek and Cypriot lenders to take part in the European Banking Authority (EBA) process have made the cut.

Eurobank had a core Tier 1 capital ratio of 4.9 percent, just below the minimum threshold of 5 percent, while ATEBank flunked with minus 0.8 percent, the central bank said.

“The results of the exercise are encouraging as regards the capital standing of our banks, which, prompted also by the Bank of Greece, carried out capital increases and took action to reinforce their position, despite a difficult environment,» Bank of Greece Governor Giorgos Provopoulos said in a statement.

The other Greek banks that took part in the stress tests were National Bank, Alpha Bank, Hellenic Postbank and Piraeus Bank. Marfin Popular Bank and Bank of Cyprus also passed.

While ATEbank was always considered at risk of failing the test, despite a recent share capital increase, Eurobank’s failure constitutes a nasty surprise for the country’s banking system. The lender needs 58 million euros to meet the capital target, according to an EBA statement on Friday.

The Greek lenders comprise two of the eight banks to have failed the test out of a total of 90 from 21 countries that have taken part. The other banks that missed the cut are five from Spain and one from Austria.

Notably, the EBA included a 25 percent haircut on Greek 10-year government bonds in its stress test on the region?s lenders.

ATEbank said its exposure to 7.85 billion euros of Greek sovereign bonds and loans was the main reason for its failing the test and that corrective measures would bring the ratio for 2012 up to 12.4 percent.

It noted that provisions of 750 million euros and a planned convertible bond for 235 million euros would help make up a shortfall of 713 million euros needed to meet the capital target.

Eurobank EFG stated it fully acknowledges the outcomes of the exercise: «Eurobank EFG has already decided, announced and is implementing capital enhancing actions, for which the Bank of Greece has been informed,» it said.