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Euromoney Country Risk

Irish bank stability on the rebound as other small euro-states slide

ECR experts, led by Irish and Portuguese restructuring, have begun to upgrade bank stability assessments after sharp falls in the indicator scores since the credit crunch five to six years ago. However, the picture is blurred by scores still falling for many at-risk countries amid deep concerns about Cyprus, Malta and Slovenia.

Systemic risk has eased in the wake of beefed-up capital and liquidity requirements introduced by Europe’s more risk-averse lenders at the behest of cautious regulators. That much is known (see: Greek banks lead fall in European bank stability risk: HEC Lausanne study).

However, the picture across Europe remains diverse: 6.1 points separate 37 European countries for bank stability, according to values assigned by ECR experts. The gap has narrowed a little from 6.6 points three years ago, but still shows deep problems on Europe’s periphery, with no fewer than 13 countries still scoring less than five out of 10 for this particular indicator – one of six comprising the economic risk assessment.

Moreover, whereas nine countries have seen their scores improve since a year ago – all by 0.1 point each, with the notable exception of Ireland’s 0.2 point rise; see second chart, below – 15 have seen their scores downgraded.

Cyprus, plummeting 1.4 points during the past 12 months or so to 4.4, Slovenia (in vogue again lately with its stress tests expanded, and on the brink of a €10 billion bailout) a full point to 4.5, plus Malta by 0.6 to 6.4, have all seen the largest corrections – highlighting weak pockets in the eurozone’s inter-connected patchwork.

France, Italy and the Netherlands, all coping with weakened economies and rising bad loans, are also among the downgraders – emphasizing a problem that is taking longer to heal than expected and is undermining the overall risk outlook, according to ECR’s experts. 

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