Twenty-five lenders in the European Central Bank’s euro-area bank health check are set to fail the regulator’s Comprehensive Assessment, according to a draft communique of the final results, seen by Bloomberg.

Some 105 are shown passing the review, according to the draft statement. Of the lenders that failed, it’sunderstood that about 10 will still face capital shortfalls they need to plug. That figure is likely to change as talks continue before the final results are published October 26th.

The two-part review forms one pillar of the ECB's effort to rekindle confidence in the euro zone after half a decade of financial turmoil. ECB President Mario Draghi has said banks need to fail to prove the losses of the past have been dealt with.

After two previous European stress tests didn't reveal problems at lenders that later failed, the ECB has staked its reputation on getting this exercise right. "The numbers are consistent with our expectations," said Alberto Gallo, head of European macro-credit research at Royal Bank of Scotland Group Plc in London. "It's too early to say the exercise is credible. The key will be to see how much stress the strong banks will take, and how many of them will pass by a narrow margin." He expects 11 banks will need to plug capital gaps after measures already taken this year.

“Highly speculative”

Banks that raised sufficient capital this year to cover the shortfall won’t have to find fresh funds. Lenders with a shortfall will have two weeks to submit a capital plan. Banks have until tomorrow to sign off on the ECB assessment. “The ECB can’t comment on speculation about the outcome of the comprehensive assessment,” the ECB said in a statement. “Any inferences drawn as to the final outcome of the exercise would be highly speculative until the results are final.”

Bloomberg