INVESTORS were spared immediate pain yesterday after the European Central Bank’s landmark banking health check did not force massive capital hikes amongst the eurozone’s top lenders.

    But the sector’s long-term attractiveness has been damaged by revelations of extra nonperforming loans and hidden losses that will dent future profits.

    The European Central Bank (ECB) said yesterday the region’s 130 most important lenders were just 25 billion euros (US$31.69 billion) short of capital at the end of last year, based on an assessment of how accurately they had valued their assets and whether they could withstand another three years of crisis.

    The amount of new money needed falls to less than 7 billion euros after factoring in developments in 2014, well shy of the 50 billion euros in extra cash investors surveyed by Goldman Sachs in August were expecting. That means existing investors will only be asked for a fraction of the demand they expected in order to maintain their shareholdings.

    But, those who read the details of the ECB’s proclamation on the health of the eurozone banking sector would have seen more ominous signs too, as the ECB pointed to the amount of work that remains to be done to restore the region’s banks.

    The review said an extra 136 billion euros of loans should be classed as nonperforming — increasing the tally of nonperforming loans by 18 percent — and that an extra 47.5 billion euros of losses should be taken to reflect assets’ true value.

    “Banks face a significant challenge as the sector remains chronically unprofitable and must address their 879 billion euros exposure to nonperforming loans as this will tie up significant amounts of capital,” KPMG noted.

    Others took a bleaker view. “One-fifth of European banks are at risk of insolvency,” said Jan Dehn, head of research at Ashmore, referencing the fact that one-fifth of banks fell shy of the ECB’s pass mark at the end of last year. (SD-Agencies)