EU banks fall far short on capital rules

REUTERS

Sheep graze next to a billboard of Spain's Bankia bank on the outskirts in the Andalusian capital of Seville December 4, 2012. Four Spanish lenders will need no more than 1.5 billion euros ($1.96 billion) of European funds to be recapitalised in the second phase of the euro zone plan to clean up Spain's banking sector, Economy Minister Luis de Guindos said on Monday. REUTERS/Marcelo del Pozo (SPAIN - Tags: BUSINESS ANIMALS)

Ambereen Choudhury and Elisa Martinuzzi London

Global lenders, especially European banks, face a capital shortfall of e474 billion (R5.5 trillion) as they struggle to meet new minimum capital ratios set by regulators, according to Boston Consulting Group (BCG).

European lenders, hit by the sovereign debt crisis, were more vulnerable to economic contractions because they had more loans on their balance sheets than their US counterparts, the consulting firm said yesterday. Consolidation would also gain momentum as stronger banks acquired weaker rivals, it added.

The Basel Committee on Banking Supervision’s new standards more than triple the core capital that lenders must hold to absorb losses, and were drawn up in response to the turmoil unleashed by the 2008 collapse of Lehman Brothers.

The so-called Basel 3 measures are scheduled to be phased in from January 1 through 2019. EU states and parliamentarians have struggled to agree on how the bloc should apply the rules.

BCG said: “Investors demand that banks achieve compliance status ahead of deadlines, so being behind the curve [for raising capital] will damage any bank’s market standing. The global banking industry in the Western world is still fragile.”

The consultancy said European banks had a e256bn shortfall to meet minimum Basel 3 core tier 1 capital ratios based on their year-end figures. That is more than double the e112bn shortfall for US banks.

In September Deutsche Bank said it would increase core tier 1 capital to at least 8 percent of its assets weighted by risk under Basel 3 by the end of March, and that ratio would increase to more than 10 percent two years later.

Credit Suisse said in July that it would boost capital by Sf15.3bn (R145bn) after Swiss central bankers demanded a “marked increase”.

“The deterioration of bank stock prices, 50 to 80 percent lower than pre-crisis levels, with EU banks suffering most, reflects the prolonged difficult environment,” BCG said.

The European Banking Authority said banks overseen by it had increased their capital reserves by more than e200bn since 2011. – Bloomberg