ECB's health check on banks unlikely to upset ratings - S&P

Tuesday 10 December 2013 12.17
S&P rates about two thirds of the banks the ECB will put through stress tests next year
S&P rates about two thirds of the banks the ECB will put through stress tests next year

Standard & Poor's does not expect the results of the European Central Bank's health check on the euro zone's largest banks to have a material impact on their credit ratings.

The ECB will take over banking supervision in the euro zone from November next year as part of a push towards closer financial integration in Europe to make the sector more resilient.

To take stock of the banks' risks and weaknesses, it will put the top lenders, which it will oversee directly, through strenuous checks first - an asset quality review (AQR) and a forward-looking stress test.

"We do not anticipate changing ratings if the AQR and stress test reveal capital shortfalls for banks where we already assess capital and asset quality as a negative rating factor," S&P said.

S&P rates 79, or about two thirds, of the banks the ECB will put through the tests and said more than half of them already had a rating weakness in S&P's assessment of their capital strength or asset quality.

This applies particularly to bank ratings in Italy, Greece and Spain, while French banks' ratings look relatively stable.

"For the banks that we rate, we do not expect a material ratings impact from the European Central Bank's assessment because we already recognise weaknesses in capital and asset quality in current ratings, and because we would expect some banks to adjust regulatory capital positions before the October 2014 announcement of results," S&P said.

However, the agency did not rule out the possibility of some surprises.

"Of course, the ECB's assessment may reveal additional fragilities in rated banks that we have so far not identified," S&P cautioned.

"This may include previously unidentified weaknesses in some banks' loss recognition, provisioning, and collateral valuations where significant, which could lead to a ratings review," it added.