STRESS TESTING:THE STATE'S two largest banks, Bank of Ireland and Allied Irish Banks (AIB), should have fewer problems than other European banks under the EU-wide stress tests of 91 banks, Minister for Finance Brian Lenihan has said.
The banks had already been subjected to more severe tests by the Financial Regulator under the Government’s recapitalisation plan and for the assessment of property loans moving to the National Asset Management Agency, he said.
“In certain respects, stress testing through Nama and the recapitalisation has been more rigorous than the European stress tests,” said Mr Lenihan, speaking at the launch of the first report of the State’s credit review group.
The Government has had “first-mover advantage” on stress testing its banking system, he said.
“We have actually moved faster in this area – as in the fiscal area – than many other European sovereign states in dealing with problems in the banking system.”
The regulator concluded that AIB required a further €7.4 billion in capital and Bank of Ireland an additional €2.66 billion to cover losses on Nama and other loans.
Bank of Ireland has already boosted its reserves by almost €3 billion through a capital-raising plan, and AIB is selling stakes in banks in Poland and the US and its UK business to raise capital.
Mr Lenihan said Bank of Ireland had shown it could raise risk capital. AIB needed to do the same “very promptly” and it was doing this through asset sales.
The Minister said the State would take a larger stake in AIB this year as part of the bank’s efforts to raise further capital.
“We will be working [with] Allied on a final structure later in the year. There will be participation by the taxpayer on that as there has been in Bank of Ireland – and that has to be finalised quickly.”
The Government increased its stake in Bank of Ireland last month by converting €1.63 billion of the bank’s €3.5 billion preference shares into ordinary stock under the bank’s capital-raising.
Mr Lenihan said the Government had a strategic plan for the banks to ensure Bank of Ireland and AIB could be viable.
