It's official: 25 eurozone banks flunk ECB financial health test

Euro coins. (Photo: AFP/Philippe Huguen)

FRANKFURT: Nearly one in five banks subjected to a crunch financial health check by the European Central Bank has failed the test, though no major banks were among them, according to official data on Sunday (Oct 26). The audit was aimed at preventing a recurrence of the single currency area's debilitating financial crisis.

That goal has become even more important in recent weeks, as the eurozone is seen to be again tottering on the edge of recession. There are rising fears of deflation and economic growth in key states France and Italy is stalling. Even Germany, which had been doing well with exports, is looking at slowing growth on the back of weak investment.

"This unprecedented in-depth review of the largest banks' positions will boost public confidence in the banking sector," said ECB vice president Vitor Constancio. He added that "this should facilitate more lending in Europe, which will help economic growth".

A total 25 of the 130 banks flunked the audit, the ECB said, adding that the worst results were concentrated in Italy, where some nine banks failed, as well as three in Greece and three in Cyprus.

The banks showed a combined capital shortfall of 25 billion euros (about US$31 billion) as at the end of 2013. Twelve of the 25 failing banks however have already covered their capital shortfalls this year, raising their capital by 15 billion euros, the ECB said.

Banks with shortfalls must prepare capital plans within two weeks and have up to nine months to cover the capital gaps. As part of the audit, the ECB reviewed the quality of bank assets to make sure they were properly valued. It also identified 136 billion euros in troubled assets, known as non-performing loans.