The European Central Bank’s comprehensive assessment, a combined asset quality review (AQR) and stess test, has revealed that euro area banks have an additional €136 billion in non-performing exposures (NPEs). The results of the detailed balance sheet examination and adverse scenario tests were published yesterday (27 October).
The tests also uncovered a €25 billion capital shortfall at 25 of the 130 banks assessed. Of the lenders with a capital shortfall, 12 have raised that shortfall by increasing their capital by a total of €15 billion since the snapshot for the assessment was taken, according to the ECB announcement.
The €136 billion increase in non-performing loans brings the euro area total up to €879 billion.
“This exercise is an excellent start in the right direction. It bolstered transparency in the banking sector and exposed the areas in the banks and the system that need improvement,” said Danièle Nouy, chair of the ECB’s supervisory board.
Taking into account the increase in NPEs uncovered, the average within the euro area increases from 13.3 percent to 15.4 percent, according to the ECB data breakdown.
Increased non-performing exposures could represent an opportunity for non-bank lenders keen to gain access to European borrowers.
Lenders across the euro area have engaged in capital raising and asset sales in anticipation of the AQR. UniCredit recently sold a €1.9bn portfolio of non-performing assets to the credit arm of UK-based AnaCap.
Of the 25 lenders that failed the test, just eight have an outstanding shortfall totalling €6.35 billion. The rest having either raised enough to cover the capital gap under the EBA’s adverse scenario or by an exemption due to a state guarantee.
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