February 21, 2011 / 5:26 PM / 8 years ago

Eurozone's no.6 bank relaxed on stress tests

FRANKFURT/BRUSSELS (Reuters) - The euro zone’s sixth biggest bank UniCredit said it will easily pass a European bank stress test, in the first industry comment before the test’s methodology is published next week.

“Having had a first look at the stress test questionnaires I can say that I’m quite relaxed as far as HVB and UniCredit Group are concerned,” the Chief Executive of Unicredit’s HVB unit, Theodor Weimer, told Reuters on Monday on the sidelines of an event in Frankfurt.

The 27-nation bloc of European countries plans to test banks in the first half of this year and recapitalize those that are weak in a move to boost market confidence in EU lenders and draw a line under the sovereign debt crisis.

Banks must supply data to national regulators by mid-April. The European Banking Authority (EBA) is expected to publish its findings at the end of June.

Separately, EBA is conducting a test on the banks’ liquidity position — based on 2010 figures — with data due March 4, an EBA document obtained by Reuters shows.

EBA said the liquidity check is part of a regular cycle of risk assessments and is not part of the pan-EU bank stress tests. “The results of the liquidity risk assessment will not be published,” an EBA spokeswoman said.

MARCH ANNOUNCEMENT

The EU’s commissioner for the internal market, Michel Barnier, told a news conference on Monday that the European Union will announce the methodology for the EU banking stress tests in early March.

Last July, 91 EU banks were tested to assess how they would cope if lending — such as residential or commercial property loans — turned sour.

But the studies did not consider the risk of a bank being forced out of business if it struggled to get credit itself, or if savers withdrew deposits.

Both factors exacerbated the difficulties of Irish banks, whose mounting loan losses and funding difficulties eventually forced the Irish government to seek an 85 billion euro ($114 billion) EU/IMF bailout late last year.

Supervisors are now in talks over how to make this year’s stress tests tougher, but there is disagreement over whether to include falls in sovereign debt prices.

The most contentious point is whether a possible future restructuring or default on debt by, for example, Greece, should be one of the test scenarios for banks.

Many fear that if such a scenario is included, it might send a signal to investors that a restructuring is imminent and undermine confidence.

“The best stress tests would be very tough, but the results should not be published,” UniCredit’s Weimer said, referring to a controversial discussion about possible impact of the stress tests on European financial markets.

Reporting by Arno Schuetze, Philipp Halstrick, Jonathan Gould in Frankfurt, Jan Strupczewski in Brussels and Huw Jones in London; Editing by David Cowell

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