Irish banks pass euro stress tests

ALL three Irish banks have passed the annual health check on whether they could survive further economic shocks.

However, the results show almost two-thirds of the country’s sovereign debt held by banks is held domestically, underlining their exposure to risk.

An emergency summit of eurozone leaders has been called in Brussels next Thursday as the banking stress tests results were released in London last night, fuelling hopes that politicians may at last agree a solution for the Greek crisis, even as it threatens to extend to Italy and Spain.

In all, just eight of the EU’s top 90 banks failed the stress tests devised by the independent European Banking Authority (EBA) and 16 more were put on special watch as they barely passed, showing how vulnerable they are to the eurozone’s weaknesses.

Finance Minister Michael Noonan welcomed the results for Bank of Ireland, Allied Irish Bank and Irish Life & Permanent.

The three banks failed similar tests in March that showed that they required an additional €20 billion in capital on top of the €50bn pumped into the sector.

This time they surpassed the level of capital they need to hold, thanks mainly to money being pumped in by the state, leaving taxpayers owning 99% of AIB and 36% of Bank of Ireland.

The tested banks hold just over €194bn of debt belonging to Ireland, Greece and Portugal but, in each case, about two-thirds of the debt is held by their own domestic banks, increasing their vulnerability to a default.

Of the €52.7bn of Ireland’s sovereign debt held by banks, the Irish banks hold 61% or about €32bn.

Irish banks would be most exposed in the event of a default or a discount, and the stress tests do not factor in such an effect.

The head of the EBA, Andrea Enria, said that even though they built in scenarios of negative growth, a drop in stock markets and losses of €400bn for two years, they did not build in a default by one of the eurozone countries.

Kevin McConnell of Dublin-based Bloxham’s stockbrokers said he did not expect the stress tests to satisfy the markets.