22nd Oct 2019

Europe's banks need €110 billion to keep credit ratings

  • Europe's banks need €110 bn to keep their credit ratings (Photo: Images_of_Money)

Europe's 50 biggest banks need capital injections of up to €110 billion to remain strong enough to sustain their credit ratings, Standard and Poor's has said.

In a report published Thursday (12 December), the rating agency warned that bank balance sheets, particularly in the EU's crisis countries, were still vulnerable.

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The report comes just weeks before the European Central Bank will begin its 'stress tests' of Europe's banks in early 2014 to assess how robust their capital positions are.

Credit ratings dictate how easily a bank can borrow on the financial markets.

"Banks' capital generation and positions relative to regulatory requirements diverge widely, and our analysis also reveals significant differences in the quality of capital among the top 50 European banks," said the agency.

Meanwhile, banks in Portugal, Italy, Spain, Greece and Ireland, accounted for 39 percent of the overall global shortfall, according to the report. Slovenia, widely tipped as the next eurozone country that could require a rescue package, revealed on Thursday that it would have to find €4.8 billion to recapitalise its banks to cover bad debts.

Standard and Poor's report underscores the continued weakness of Europe's banks despite the ECB offering hundreds of billions of euros in cheap loans since the 2008 banking crisis began. The ECB has also dropped interest rates to a record low of 0.25 percent.

However, the agency conceded that the bloc's banks were in a healthier position than in last year's review. EU governments claim that the capital positions of banks have been strengthened by €200 billion since 2012.

"In the first half of 2013 these banks shrunk their balance sheets by €1.1 trillion," the agency said, adding that this has reduced their capital funding gap by €34 billion.

For its part, audit firm PricewaterhouseCoopers (PwC) has estimated that European banks overall will need €280 billion in new capital in 2014 to pass the stress tests.

In a nod to the eurozone's nascent recovery which has seen a growth rate of 0.2 percent for the first nine months of 2013, Standard and Poor's commented that the Frankfurt-based bank would "have to play the role of the patient gardener in watering those green shoots that have emerged in the eurozone since the middle of the year.”

The ECB should offer a new long-term loan facility to banks to ease the recovery, the ratings agency commented.

Banks still eurozone's weak link, OECD warns

The eurozone's banks are in urgent need of extra capital if the bloc is to stabilise its fragile economic recovery, according to research by a leading economic thinktank.

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