Failures likely in stress tests

The stress tests conducted on 91 European banks, including six Greek ones, are likely to reveal some nasty surprises when the results come out this evening. All indications show that the optimistic view taken by most that all Greek lenders will pass the test, even marginally, will be proven wrong. ATEbank, which had been seen from the outset as the weakest, is likely to fail the 6 percent limit for the Tier 1 index of basic capital. Sources also note that one or two other domestic lenders are borderline and could also fail the stress test. The 6 percent rate is the minimum capital adequacy level (Tier 1) and each bank with a lower index is obliged to cover the difference immediately through a share capital increase. The original optimism about the test results dissipated somewhat yesterday, bank officials said, as the authorities making them returned the tests of dozens of banks for further processing with some assumptions considered unrealistic. Central banks in Europe have reportedly asked many commercial lenders to repeat the test, adjusting their projected earnings for 2011 and their provisions to more realistic levels. The six Greek banks partaking in the exercise are National Bank, Eurobank EFG, Alpha Bank, Piraeus Bank, ATEbank and Hellenic Postbank, which together represent some 85 percent of the country’s market share.

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