UPDATE: All 3 Irish Banks Pass The EBA Stress Test Scenario

All three main Irish banks--Bank of Ireland (IRE), Allied Irish Banks (AIB) and Irish Life and Permanent (ILO.DB)--passed "an adverse scenario" stress test set by the European Banking Authority as Ireland's debt-engulfed lenders prepare to tap a major rescue and recapitalization program.

Analysts say the results of the new EBA stress tests had limited relevance to the Irish banking system following the restructuring plans being overseen by Ireland's bailout lenders--the European Union, International Monetary Fund and the European Central Bank.

Irish banks--now almost totally government-controlled and needing continuous short-term funding from the ECB to keep their doors open--were subjected to a separate, extensive stress-test regime by the Irish central bank in March. Friday's EBA stress-test results included the recapitalization plans announced by the central bank.

The EBA said Bank of Ireland recorded a 7.1% core Tier 1 ratio as of April 30, above the 5% threshold under the adverse test, and rising to 8.7% by the end of 2012. Allied Irish Banks posted a 10% capital ratio, rising to 11.7% over the same period, while Irish Life and Permanent recorded a 20.4% capital ratio, easing to 20.0% by the end of next year, according to the EBA test.

Irish Finance Minister Michael Noonan said he welcomed the EBA disclosure of the sovereign debt holdings by banks. That showed Irish banks held 61% of a total of EUR52.7 billion in exposures to their government.

There are significant differences between the EBA and the Irish central bank's tests, analysts say.

The central bank set its core Tier 1 threshold at a ratio of 6%--above the EBA's 5% threshold. It also based its estimate of Irish banks' losses over three years, longer than the two-year period applied by the EBA.

However, the ongoing euro debt crisis is likely to overshadow the positive aspects of Friday's test results, said Conor Houlihan, partner at law firm Dillon Eustace.

In all, the Irish central bank estimated in March that four banks--including the small Educational Building Society, which is being folded into Allied Irish Banks--needed an additional EUR24 billion in capital and buffer reserves over three years.

The central bank estimated Bank of Ireland needed EUR5.2 billion more in capital and other buffer reserves, including EUR3.7 billion in core Tier 1 capital between 2011 and 2013.

Allied Irish Banks needed EUR13.3 billion, including EUR10.5 billion in capital over the same period, the central bank said in March. And Irish Life and Permanent required EUR4 billion, including EUR3.3 billion in core capital, it said.

Only Bank of Ireland, which is battling to stay out of majority government ownership, has any chance of raising a significant part of its capital and reserve requirements from private sources by a deadline later this summer.

The huge cost of rescuing the banks forced the government to strike a EUR67.5 billion bailout deal with the EU, IMF and ECB in November after markets refused to lend it more money.

-By Eamon Quinn, Dow Jones Newswires; [phone]; [e-mail]