Austria's Volksbanken faces stress test capital hole-sources

ALPBACH, Austria Fri Aug 29, 2014 3:41am EDT

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ALPBACH, Austria Aug 29 (Reuters) - Part-nationalised Austrian lender Volksbanken AG looks poised to fail a health check of major euro zone banks' balance sheets, two sources close to the situation said.

Results of the European Central Bank-led Asset Quality Review (AQR) and ensuing stress tests are not final and emerge only in October, but preliminary estimates show the group needs more capital, one source with direct knowledge of the matter said on Friday.

Volksbanken, which is majority owned by regional savings banks and in which the state took a 43 percent stake in 2012, declined comment ahead of the official results.

The central bank also declined comment, saying testing was still under way and results can change.

Der Standard newspaper reported the capital gap was between 600 million euros ($790.4 million) and 800 million.

"The order of magnitude is right but it is not exactly 800 million. It can still change. This is the midpoint of a range that is being discussed," the source said on condition of anonymity because the stress test process is confidential.

Part of the capital shortfall arises from the AQR itself, which exposed insufficient reserves in central and eastern Europe. The rest comes from the adverse scenarios part of the test, the source said.

Banks have six months to close any capital gap from the AQR, and nine months to address shortfalls from the adverse scenario test which checks if they can maintain a 5.5 percent capital ratio. They need an 8 percent ratio under baseline scenarios.

Just how Volksbanken and its majority shareholders can close the gap remains to be seen. The lender said on Thursday it was in talks with its owners about shoring up its balance sheet.

Austrian government officials have said the bank cannot expect any more state aid after taxpayers provided 1.35 billion euros in support so far, and Volksbanken has said it intends to solve its problems without more public help.

The source said the regional bank shareholders are reviewing if and how they can resolve the issue themselves, but added: "It is not completely ruled out that the government will somehow have to cover its proportionate share."

Volksbanken is one of six Austrian banks coming under scrutiny before the ECB takes on direct supervision of major lenders in November. Two Russian banks with regional headquarters in Austria will also get ECB oversight. (1 US dollar = 0.7597 euro) (Editing by David Holmes)

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