Monday 11 December 2017

AIB 'scrapes through' the EU stress test


ALLIED Irish Banks (AIB) was one of 12 banks to "scrape through" the EU's stress testing, with concerns lingering over its ability to raise funds before the end of the year.

While opinion on the merits of the stress test was deeply divided, the presence of AIB on a Financial Times list of banks who barely made it has led to fresh concerns over its financial position.

Both Bank of Ireland and AIB passed the stress tests to establish how resilient they would be in difficult economic circumstances.

The test subjected the banks to a programme whereby the economy could deteriorate and suffer further damage from problems with international sovereign loans.

Some 91 banks across Europe were subjected to the test by the Committee of European Banking Supervisors. A total of seven failed.

However, in AIB's case, passing the test assumes that the bank would succeed in raising €7.4bn in further capital by the end of the year.

If they fail to do so, the Government may have to step in to meet any shortfall in the capital requirements.

Bank of Ireland has already raised all of the capital required of it.

The banks had already passed more severe stress testing carried out by the Irish Financial Regulator in March as part of the re-capitalisation programme.

The test was carried out under three scenarios: a benchmark scenario, an 'adverse' scenario and a worst-case scenario, which took into account the impact of potential losses on eurozone government bonds held by banks.

Bank of Ireland said that even in the third scenario, its Tier 1 capital ratio -- a measure of banks' financial strength -- would be 7.1 per cent, well above the six per cent needed to pass the test. Analysts were watching to see how robust the latest European stress testing would be. They feared that if too many banks got through, it would imply the test was meaningless.

Finance Minister Brian Lenihan has welcomed the outcome of the tests for AIB and Bank of Ireland. He said they vindicated the financial targets set for the banks by the Central Bank and Financial Regulator earlier this year.

Mr Lenihan said he welcomed the transparency the EU-wide test had brought to the banking system.

However, he said the results of the worst-case scenario in the tests should not be considered as representative of the current position, saying they were based on "extreme assumptions rather than expected outcomes".

Meanwhile, an analyst with BGC Partners Howard Wheeldon said there is scepticism that the tests were not tough enough.

Sunday Independent

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