BANK OF IRELAND is likely to pass the EU-wide bank stress tests following the Financial Regulator’s own stress tests completed earlier this year, according to an analyst at credit rating agency, Moody’s.
The State’s two biggest banks, Bank of Ireland and AIB, are among 91 banks across 20 countries being tested by the Committee of European Banking Supervisors (CEBS) to assess possible losses arising from sovereign debt and greater economic strain.
Europe is assessing how the banks would cope with another economic downturn in an effort to restore confidence after Greece’s sovereign debt crisis hit markets.
Moody’s analyst Ross Abercromby said he would be “very surprised” if Bank of Ireland was asked to raise additional capital following the EU stress tests.
He would not be surprised if AIB was asked to raise capital, he said, but it had already been through the Irish regulator’s own tests and has been told to raise €7.4 billion by the end of the year.
Mr Abercromby said the regulator’s capital stress tests on the two banks under the so-called Prudential Capital Assessment Review (PCAR) “looked to be somewhat stronger” than the EU tests.
Bank of Ireland climbed 4.5 per cent, or three cent, to 69 cent yesterday, while AIB gained 1 per cent, or one cent to 86 cent.
Bank of Ireland boosted its reserves by €2.9 billion in a capital-raising completed last month.
AIB is selling stakes in Bank Zachodni WBK in Poland and MT in the US as well as its UK business as part of the bank’s plan to raise the €7.4 billion to meet the regulator’s new capital rules.
CEBS will publish the results of the EU stress tests on a bank by bank basis at 4pm on Friday.
The Financial Regulator is planning to publish detailed comparisons between the EU tests and its own stress tests on the banks.
A spokeswoman for the regulator said Bank of Ireland and AIB “had been through rigorous stress testing” and will be expected to meet its capital requirements.
“A combination of equity raising and asset disposals underpinned by Government support has been and will be provided to ensure they meet those targets by December 2010,” she said.
The worst-case scenario tested by CEBS covers a three percentage-point drop in economic growth from EU forecasts for the next two years, representing a potential double-dip recession.
The tests will also examine a jump in borrowing rates linked to a deterioration in the EU government bond markets.
Central Bank governor Patrick Honohan said last week that he thought the tests would “go some way to removing exaggerated concerns about some particular risks” relating to the banks. – (Additional reporting Bloomberg)
