What are the balance sheet assessments all about?

There is still a lot of uncertainty about what is on the balance sheets of the euro zone’s banks – what do they have in terms of assets and what do they owe.

From November 2014, the European Central Bank will be responsible for regulating the biggest credit institutions.

At the request of the EU-IMF, as Ireland exited the bailout programme, the Central Bank was required to do a balance sheet assessment of the State's banks. The balance sheet assessment was carried out by reviewing how loans were classified, how future losses were being provided for and how the banks reflected their risk-weighted assets, a measure of the amount of a bank's assets, adjusted for risk.
AIB
AIB said that, based on an initial assessment of the Central Bank findings, it remains "well capitalised and in excess of minimum regulatory requirements".

In a statement yesterday, AIB noted the Central Bank’s balance sheet review included an assessment of asset quality, risk-weighted assets and point in time capital as of June 30th, 2013.

AIB said it had been advised of the findings of this review which it will consider in the preparation of the bank’s year- end December 2013 provisions and financial statements.

“Based on an initial assessment of the findings of the [balance sheet assessment], the bank believes it continues to be well capitalised and in excess of minimum regulatory requirements.”

Bank of Ireland
The BofI said it won't need to raise additional capital following the Central Bank's assessment of its balance sheet. The bank said it was still talking to the Central Bank about the assessment, which confirmed it had "adequate capital".

The results “remain the subject of ongoing engagement between the Central Bank of Ireland and Bank of Ireland”, it said.

“While the outcome of this engagement cannot be anticipated with certainty and actions taken following engagement with the Central Bank of Ireland may adversely impact capital ratios, the bank continues to expect to maintain a buffer above a core tier-one ratio of 10 per cent.”

Under the review, the bank’s core tier-one capital adequacy ratio fell to 9.85 per cent of risk-adjusted assets from 13.8 per cent as of June 30th, calculated on the basis of a gradual introduction of tougher global capital rules.

The bank said it expected to maintain the ratio above 10 per cent on that basis.

In its review the Central Bank estimated that BofI needed to set aside an extra €360 million to cover potential loan losses on mortgages, an additional €486 million to cover potential losses on business loans and €547 million on defaulted loans.

The Central Bank also increased Bank of Ireland’s risk-weighted assets, usually loans adjusted for the likelihood of non-payment, by €6.8 billion

Bank of Ireland said total arrears in its Irish mortgage loan books had stabilised in the third quarter of 2013 and into October, with the level of early arrears declining.

It also noted its main markets – Ireland and the UK – remained "broadly stable to slightly improved" compared with the first half of the year, with loan portfolios continuing to perform in line with expectations.
Permanent TSB
PTSB has said that its capital position – it's assets minus its liabilities – is above the minimum regulatory requirements.

The bank said it had been provided with an outcome of its balance sheet assessment by the Central Bank, and that the assessment focused on the sufficiency of provision levels and capital measurement at the end of June under incoming regulatory capital rules.

“Based on the communicated results the outcome confirms that the capital position of Permanent TSB plc is above minimum regulatory requirements,” the bank said.