Cyprus banks need 3.53 bln by June 2012, says EBA

The European Banking Authority found that the island’s two main lenders, Bank of Cyprus and Marfin Popular Bank, will need to raise about 3.53 bln euros by next June as a capital buffer in the current difficult market environment.
However, both banks said they believe they can shore up the necessary capital, either through existing rights and fresh capital issues or by other plans to be announced by mid-January.
The Central Bank of Cyprus said the EBA conducted the capital exercise based on figures up to September and following a Council decision on October 26 that “requires banks to strengthen their capital positions by building up a temporary capital buffer against sovereign debt exposures to reflect current market prices.”
In addition, the EBA requires them to establish a buffer such that the Core Tier 1 capital ratio reaches a level of 9% by the end of June 2012.
A total of 71 banks across Europe were subjected to the capital exercise with the aim to provide a reassurance to markets about banks’ ability to withstand a range of shocks and still maintain adequate capital.
Europe's banks must find 114.7 bln euros of extra capital, more than predicted two months ago, to make them strong enough to withstand the euro zone debt crisis and restore investor confidence.
The EBA said the capital shortfall was almost 8% higher than the 106.4 bln euros estimated in October, telling banks to fill any shortfall through rights issues, shrinking loans to customers, selling assets or cutting dividends or pay for staff. National governments may have to bail out any lender unable to find the cash.
The shortfall of 3.531 bln euros for the two Cyprus banks was calculated without taking into account the existing contingent convertible hybrid instruments amounting to 1 bln that can be used to cover part of the shortfall, the Cypriot central bank said, adding that both banks are required to submit a plan by January 20 setting out the proposed mix of actions so as to meet the required 9% Core Tier 1 target, thereby bringing the shortfall to zero by June 2012.
The Bank of Cyprus said the EBA’s estimate on required additional capital to reach Core Tier 1 ratio of 9% is 1.56 bln euros. It said it has in issue 887 mln euros in convertible enhanced capital securities which are part of Tier 1, Basel III compliant and with loss absorbing characteristics.
Taking that into account, the remaining capital shortfall based on EBA estimates is 673 mln euros, the bank said, adding it is in a position to cover the shortfall through the completion of rights issue of 396.3 mln euros, internal profit generation and other actions including efficient management of risk-weighted assets.
The bank announced a loss of 801 mln euros on the impact from a 50% writedown of its Greek government debt, but said that operating profits had improved. It will also be under pressure to reduce some of its non-performing assets.
Marfin Popular said the EBA estimate on required additional capital to reach Core Tier 1 ratio of 9% is 1.97 bln euros.
The bank, which has undergone some management changes after the resignation of its non-executive chairman and Tuesday’s departure of its CEO, said it will set out a comprehensive capital enhancement plan to the Central Bank of Cyprus by January 20, with the aim to reduce the capital shortfall to zero by the end of June 2012.