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German banks set to pass stress tests.

All German banks stress-tested by European regulators are certain they will get the green light, although some lenders will just scrape through, sources close to banks and watchdogs said on Friday.

"There will likely be no failures, but several banks will pass with a core Tier 1 capital ratio of just above 5%," one of the sources said.

The European Banking Authority is due to announce next week the results of its latest stress tests of the region's top lenders -- 91 in all -- in another attempt to reassure investors that European banks have been rebuilt to withstand future shocks.

It is demanding that banks retain at least 5% of the hardest form of capital -- known as core Tier 1 -- when exposed to an economic dip or fall in asset prices.

The EBA is still in the process of finalising the results, another source said.

Meanwhile banks have run their own checks to emulate the EBA's test.

The publicly-owned landesbanks HSH Nordbank and NordLB are among the German banks to just barely pass the test, the sources said.

NordLB and peer Helaba earlier this year adapted their capital levels in order increase their chances of passing the test.

European countries will support banks that fail stress tests if those lenders cannot raise capital from investors within six months, according to a draft EU document seen by Reuters.

The internal document also describes how the EU will put lenders that nearly fail the tests on a critical watch list in case they deteriorate further.

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Publication:Financial Mirror (Cyprus)
Date:Jul 8, 2011
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