(Adds detail, background on other failures)
By Michael Shields and Angelika Gruber
ALPBACH, Austria Aug 29 Part-nationalised
Austrian lender Volksbanken AG believes it does not
have enough capital to meet the demands of the European Central
Bank's landmark review of euro zone lenders, two sources close
to the situation said.
The comments come a day after the bank said it was looking
to boost its capital, though it said then a shortfall was not
likely to emerge until 2017 and did not expect any negative
impact from the ECB's scrutiny.
Any more urgent need for fresh funds would therefore point
to a more acute requirement than the bank indicated on Thursday
and would put it in the company of a handful of others known to
be facing capital shortfalls because they won't meet the ECB's
The ECB is examining whether about 130 of the euro zone's
top banks have properly valued their assets and have enough
capital to withstand future crises, in a bid to banish doubts
about their health six years on from the global credit crunch.
Results of the exercise will not be finalised until October,
but preliminary estimates Volksbanken has prepared internally
show the group needs more capital, one source with direct
knowledge of the matter said on Friday.
Banks can try to estimate their results because the ECB has
published hundreds of pages detailing the methodology it is
using for the tests, as well as the hurdles banks must meet.
A few others are known to have a capital shortfall.
Germany's cooperative mortgage lender Muenchener Hypothekenbank
admitted on July 17 that it came up short but said it
had already raised capital to cover the hole.
The path ahead for Volksbanken, which is majority owned by
regional savings banks and in which the state took a 43 percent
stake in 2012, is less clear. Austrian daily Der Standard
reported the capital gap at Volksbanken was between 600 million
euros ($790.4 million) and 800 million.
A source, speaking on the condition of anonymity because the
stress test process is confidential, said that figure was in the
right range but stressed it could still change.
Part of the capital shortfall arises from the asset quality
review itself, which exposed insufficient reserves in central
and eastern Europe. The rest comes from the adverse scenarios
part of the test, the source said.
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."
The bank declined comment ahead of the official results, as
did the Austrian central bank, which said testing was still
under way and results could change. The ECB also declined to
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.
Banks being scrutinised by the ECB have six months to close
any capital gap from the assest quality review, 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.
Volksbanken's Common Equity Tier 1 ratio - the key yardstick
for the ECB-led AQR and stress tests - was 11.2 percent of
risk-weighted assets at the end of June, but it acknowledged its
ratios could be damaged if there was a negative surprise in the
(1 US dollar = 0.7597 euro)
(Additional reporting by Laura Noonan in London and Eva Taylor
in Frankfurt; Editing by David Holmes)