Lenders in the United Kingdom will have to raise around GBP25 billion by the end of this year to absorb possible losses from exposure to high-risk loan portfolios, a report released by the Bank of England (BoE) said Wednesday.

The statement said that the Financial Policy Committee (FPC), set up to guard against any further financial crisis, has identified the capital deficit following an inquiry into banks' exposure to the sovereign debt crisis in the Eurozone, the property market and other financial risks over a three-year period.

The FPC said that the primary objective for UK banks should be to achieve a common equity tier-1 capital ratio of at least 7 percent of risk-weighted assets by the end of the year.

The examination was done in order to ensure that the capital of UK banks and building societies reflects a proper valuation of their assets, a realistic assessment of future conduct costs and proper calculation of risk weights.

The FPC assessed that the expected losses from specific high-risk loan portfolios over a three-year period could far exceed the existing provisions. The adjustments to the provision so as to incorporate the excess could be equivalent to around a GBP50 billion reduction in the regulatory capital of major banks and building societies.

Last year, the FPC had assessed that the total capital shortfall faced by banks and building societies in the UK could be in the range of GBP 24 billion to GBP 60 billion.

On the basis of the findings, the committee called for prudent steps to increase capital ratios for UK lenders beyond 2013. Banks will have to transition to full Basel-III compliance and meet the surcharge on systemically important banks and the new trading book capital regime.

Banks will also be required to meet the requirements imposed by the government's implementation of the Independent Commission on Banking recommendations.

RTTNews