SNL’s tables showing the asset quality of the failed banks indicates that they could require more capital than the ECB has demanded. Few show an AQR-adjusted coverage ratio higher than 50% with several having figures below 30%. Moreover, the coverage ratios of the loans newly-classified as nonperforming are typically lower than extant NPLs in the corporate book.
The AQR, however, saw coverage ratios rise in general due to adjustments based on the credit file sampling and projections as well as model differences. It particularly reflects collateral revaluation. In the list of the failed banks, this resulted in significant improvements in their coverage and thus important reductions in their stated or potential capital shortfalls.
Overall, while soured loans rose, their coverage did so too. Unsurprisingly, the AQR adjustments for NPEs particularly affected Austrian, Greek, Italian, Irish and Spanish lenders.
