Tests start on systemic lenders

Tests start on systemic lenders

European officials began on Wednesday the inspection that will eventually determine the extent of the recapitalization required by local banks, while the timetable is extremely tight, aiming to have the entire process to boost the lenders’ share capital completed well before the end of the year.

Inspectors from the European Central Bank and the European Stability Mechanism yesterday delved into the files of more than 4,000 corporate loans and 2,000 mortgages, as they began probing the loan portfolios of the country’s four systemic banks.

The December deadline is meant to prevent the application of the new bail-in law – i.e. the haircut on deposits of more than 100,000 euros – which will otherwise come into force in January 2016. The timetable is so restricted that it foresees the monitoring of the loan portfolios’ figures up to June 30 running alongside the stress tests that will examine banks’ possible responses to various economic scenarios in the next couple of years.

That will bring the start of the stress tests a step closer, with the first data being drawn as soon as mid-August, so that the results of both procedures can be announced by the end of October. That will leave a period of two months for the completion of the recapitalization, which could be conducted in summary fashion at the banks’ general meetings.

Bank managers are expressing concern about the size of the capital requirements, with current estimates putting the total amount between 10 and 15 billion euros. However, the final amount will to a great extent depend on the macroeconomic scenarios, which will involve economic contractions and unemployment levels that will determine the capacity of households and corporations to meet their loan repayment obligations.

Corporate loans will come under the scrutiny of the Asset Quality Review, with the European experts assessing a broad sample of some 1,000 loans per bank. They will also probe around 500 mortgage loans per lender, factoring in the drop in property values.

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