Banks set to pass ECB tests after loss provisions

The tens of billions of euro that eurozone banks set aside for loan losses in their latest annual accounts may have substantially reduced the chance of institutions failing ECB stress tests in the next few months.

A total of €71.5bn was set aside last year by the 20 biggest listed banks involved in the exercise, an analysis of their new annual reports shows. Many also boosted capital ratios by raising cash and hoarding profits.

If replicated across the 128 lenders subject to tests the ECB aims to complete by October, it could mean no bank will fail or be forced to raise large amounts of new capital. Such limited consequences helped discredit previous tests by the European Banking Authority — one reason the ECB is keen to show that its new exercise will truly be tough.