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ECB hopes to boost bank confidence with tougher health tests

ECB hopes to boost bank confidence with tougher health tests
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The European Central Bank has promised tough testing times for the eurozone’s top lenders to make sure they can withstand any future economic shocks.

ECB President Mario Draghi said it was expected the “assessment will strengthen private sector confidence in the soundness of euro area banks and in the quality of their balance sheets”.

A total of 128 financial institutions will be scrutinised over the next year, that is about 85 percent of the currency bloc’s banking system.

The stress testing is designed to discover any risks hidden in bank’s balance sheets – such as loans that are not likely to be paid back – so they can raise extra capital and cover that.

It will use tougher new measures set out by Europe’s regulator – the European Banking Authority (EBA).

The EBA defines non-performing loans as those that are more than 90 days overdue.

Some analysts said if that review is too strict and reveals unexpectedly large problems with some lenders it could undermine the very confidence it is intended to bolster.

Shares in eurozone banks fell nearly three percent on concerns the tests could put them under pressure to plug capital holes, with Spanish lenders down four percent on average and Italian bank stocks down three percent.