Malta’s two largest retail banks have passed a Eurozone-wide stress test, a review by the European Central Bank shows.
The ECB evaluated the strength of the loan portfolios issued by Bank of Valletta and the subsidiaries of international banks, HSBC and Deutsche Bank.The results showed that the three banks had no capital shortfalls. HSBC Malta was analysed as part of the holding company based in the UK.
But 13 of Europe's 130 biggest banks have failed the review of their finances and need an extra €10 billion to cushion themselves against any future crises.
ECB officials said yesterday that the test had been tougher than similar reviews in 2011 and 2010, which gave a pass to banks that later needed bailouts.
They argued the review ensures banks, some of which have been reluctant to offer credit because they were nursing bad investments, will be ready to lend when the European economy finally picks up, removing an obstacle to recovery.
Yet after months of talk about banks that were "zombies" — walking dead, too weak to lend — it appeared unlikely that any would be put out of business by the test.
Most of those that failed either have only small shortfalls to make up, or can point to ongoing restructuring plans as sufficient to bring them across the finish line.
The ECB said 25 banks in all were found to need stronger buffers. Of those, 12 had already made up their shortfall during the months in which the ECB was carrying out its review. They found money by issuing new shares, or by shedding risky investments or loan businesses. The remaining 13 now have two weeks to tell theECB how they plan to increase their capital buffers up to nine months to actually carry out the plan.
The ECB checked the worth of banks' holdings and subjected the banks to a stress test that simulates how their finances would fare in an economic downturn.
The exercise is aimed at strengthening the banking system so lenders can provide more credit to companies, boosting business activity and, hopefully, jobs. The economy has been plagued both by banks' unwillingness to lend at affordable rates and by weak demand from companies that see no reason to risk borrowing.
The ECB's new role is aimed at strengthening the euro currency union in the wake of its crisis over government debt. It would do that by toughening oversight of banks and keeping their troubles from turning into huge losses for national governments through bailouts. The ECB is taking over as supervisor for the biggest banks from national supervisors, who were considered to take it too easy on their home banks and not step in to ward off problems. National supervisors will still look after smaller banks.
BOV satisfied at outcome
BOV Chairman John Cassar White expressed satisfaction at the outcome, which, he said, confirms the resilience of the bank to a hypothetical situation of high stress.
“This result will serve to boost market confidence in the strength and stability not only of BOV, but of the entire Maltese financial system,” stated Mr Cassar White. “We view the Single Supervisory Mechanism as an opportunity to continue to reinforce the local financial services industry. BOV will continue to be vigilant in the management of risks and will strengthen its corporate governance to ensure that it continues to perform its role in a sustainable and effective way”.
Read EBA press release here:
http://www.eba.europa.eu/-/eba-publishes-2014-eu-wide-stress-test-results