BoI 'has the money to weather fresh crisis'
Published 24/07/2010 | 05:00
BANK of Ireland could weather another financial crisis, the Committee of European Banking Supervisors (CEBS) said yesterday.
In the event of another "severe" market shock, Bank of Ireland has €933m to spare, while AIB has €352m of capital headroom.
The commentary on Ireland's two biggest banks came as CEBS published the results of an EU-wide exercise to test the resilience of 91 major financial institutions.
The tests measured the banks' resilience to another broad recession and to shocks in individual countries.
Policymakers hope the results will improve confidence in the banking system and bolster paralysed bank funding markets, mirroring the impact of a similar exercise in the US banking system last year.
Faced with the various stresses, Bank of Ireland still retained a tier one ratio of 7.1pc against the CEBS passmark of 6pc, while AIB recorded a result of 6.5pc.
"It was pretty much what we had expected," said Davy's analyst Emer Lang, pointing out that both banks had already been through a rigorous stress-testing exercise at the hands of the Financial Regulator.
Those tests mandated Bank of Ireland to improve its capital position by €2.66bn by the end of the year, while AIB was asked to bolster its coffers by €7.4bn in the same timeframe. Bank of Ireland has since raised €2.9bn. CEBS has assumed that AIB will hit its year-end targets or the Government will make good on its pledge to fill any shortfall.
The CEBS tests mirrored many of the aspects modelled by the Financial Regulator, including the impact of transfers to bad bank Nama and other loan losses.
It also assessed the ability of Ireland's banks to take writedowns on their sovereign debt holdings.
CEBS applied direct haircuts to sovereign debt held on the banks' trading accounts, with the severest discounts applying to Greek (23pc), Portuguese (14pc) and Irish (12.8pc) debt. Figures released yesterday show neither Bank of Ireland nor AIB hold any Greek, Portuguese or Irish debt on their trading books.
CEBS also published figures on the level of sovereign debt all 91 banks are holding to maturity.
Finance Minister Brian Lenihan last night welcomed the tests' results, calling them a "vindication" of the Financial Regulator's earlier tests.