UK banks capital hole not as big as feared

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UK banks capital hole not as big as feared

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Britain’s banks have been told they must raise 25 billion pounds – that’s 29.6 billion euros – in extra capital by the end of the year.

The UK central bank says they have to boost their reserves to cover any future losses on loans that are not paid back. It did not give a breakdown of how much each bank needed to raise.

That is crucial for returning part state-owned lenders Lloyds and RBS to full private ownership.

The amount is less than investors had expected.

Analyst Oliver Burrows of Rabobank said : “I believe the market was expecting an undercapitalisation number for the UK banking system of around 60 billion pounds (71 billion euros). Some banks will not have to make major changes under the new regulations that are coming – for example Lloyds, so perhaps they come out the best – whereas Barclays and RBS will have to restructure quite significantly, particularly reducing investment banking operations.”

The banks need to rebuild capital decimated by the financial crisis and heavy fines for misconduct.

They are expected to say how they will raise the money in the next few weeks. Analysts expect them to continue with measures such as curbing dividends and bonuses and selling assets, although some new capital may be needed.

Bank of England Governor Mervyn King said this will strengthen banks and allow them to lend more.

But UK business minister Vince Cable said it will further depress already weak lending to small businesses, delaying economic recovery.