By Huw Jones and Matt Scuffham
LONDON (Reuters) - Britain's banks must raise 25 billion pounds of extra capital by December to absorb any future losses on loans, the central bank said, less than investors had expected.
The Bank of England said on Wednesday that major lenders should achieve a core tier 1 capital ratio - a bank's main benchmark of health - of at least 7 percent of their risk-weighted assets.
Replenishing capital buffers, decimated by the financial crisis and heavy fines for misconduct, is crucial to returning part state-owned lenders RBS and Lloyds to full private ownership by the 2015 general election.
The move to strengthen banks should also allow them to lend more and support economic growth, central bank governor Mervyn King said.
He said the banks will not need taxpayers' money to increase their capital.
Matthew Fell, a director at UK business lobby the CBI, said it was difficult to see how banks can meet the capital targets without restricting lending.
Along with RBS and Lloyds, HSBC and Barclays dominate the market with 74 percent of deposits.
Banks have already announced some plans to bolster capital which, along with their expected earnings this year, should cover half of the 25 billion pound shortfall.
The amount they have to raise is less than investors had expected after the central bank said last year the figure could be as high as 60 billion pounds.
Shares in RBS were down 0.4 percent while Lloyds jumped 3.1 percent, with HSBC up 0.1 percent and Barclays up 0.8 percent.
"You can pretty much guess HSBC is going to be in surplus and that Barclays, RBS and Lloyds have probably got a shortfall and I would guess the shortfall is probably biggest at RBS," Shore Capital analyst Gary Cooper said.
The central bank did not give a breakdown of how much each bank needs to raise.
DIVIDEND CURBS
Banks are expected to say how they will raise the money in the next few weeks. Analysts say they will likely curb dividends and bonuses, although some new capital will be needed.
Banks will have to hold a set amount of capital so they are not tempted to cancel loans to bump up their capital ratios.
Those that hold large amounts of risky commercial property or are exposed to struggling euro zone countries such as Greece or Spain will have to hold even more capital above the 7 percent target.
RBS said its capital position was strong and that it was working with regulators, while Barclays said it was "profitable, strong and well-capitalised".
Santander UK said it would continue to maintain its capital ratios above the industry average.
HSBC and Lloyds declined to comment.
Wednesday's announcement outlined two phases: the December deadline for the minimum capital level, five years earlier than the globally agreed timetable under the Basel III accord, and regular stress testing of banks beyond 2014 that will lead to further capital increases.
The big banks are expected to have capital ratios of 10 percent by the end of 2018.
Bailey, who is also chief executive of the Prudential Regulation Authority, the UK's new banking supervisor from April 1 when the Financial Services Authority is scrapped, will meet banks individually after the Easter holiday to vet their plans.
From April, the central bank's Financial Policy Committee, tasked with spotting broader risks in the financial system, has the power to direct regulators to force banks to comply with requests to bolster capital.
Bailey began his checks on how banks calculate risk on their books to determine overall capital requirements last November and has expressed concern about inadequate provisions for losses on loans.
All four of Britain's biggest banks have been hit with fines totalling more than 14 billion pounds so far for mis-selling loan insurance, putting further strain on capital.
UK MPs are also putting pressure on regulators to increase competition in a sector.
(Additional reporting by William Schomberg; Editing by Erica Billingham)
Source: http://news.yahoo.com/boe-lenders-capital-shortfall-25-billion-pounds-094051497--business.html
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