Cyprus banks prepare for stress tests from ECB

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Four main Cypriot banks (Bank of Cyprus, Hellenic Bank, the Cooperative Central Bank and RCB) are undergoing the European Central Bank’s stress-testing simulation exercise to determine whether they have sufficient capital in the event of various economic scenarios.
Four main Cypriot banks (Bank of Cyprus, Hellenic Bank, the Cooperative Central Bank and RCB) are undergoing the European Central Bank’s stress-testing simulation exercise to determine whether they have sufficient capital in the event of various economic scenarios.

ECB stress tests comprise an analysis of each bank’s balance sheet as at the end of 2013, allocating value to its holdings, and an estimation of recapitalisation needs under normal economic circumstances as well as in the event of extreme economic conditions.

As a minimum, banks will be required to hold an 8% capital buffer under the assumptions of the average scenario, and 5.5% under those of the extreme scenario. Should any bank’s figures drop below either of these benchmarks, it will be required to raise enough capital to meet them.

Earlier hopes that Cypriot banks would be given more flexible stress-testing, due to a severe banking crisis devastating the economy, have been dampened by last week’s ECB decision to include the banks in its programme to purchase covered bonds from Eurozone credit institutions.

At 15% of capital following its successful recent raising of €1 billion in new capital, the Bank of Cyprus seems best-positioned to pass the test, though it also suffers large amounts of non-performing loans.