New York: Stress tests on European banks were not strict enough and regulators should have taken a broader look, according to Steve Bernstein, chief executive officer of Oppenheimer Investment Asia Ltd.

"The test isn't rigorous enough. As time goes on, there must be other banks that need to raise more capital," Bernstein said in an interview in Hong Kong. "The fact that they only look at one part of the portfolio isn't enough. The test should have looked at the banks' investment portfolio as well."

European Union stress tests found that seven banks need to raise 3.5 billion euros ($4.5 billion) of capital. Germany's Hypo Real Estate Holding AG, Agricultural Bank of Greece and five Spanish savings banks didn't have adequate reserves to maintain a Tier 1 capital ratio of at least 6 per cent in the event of a recession and sovereign-debt crisis, lenders and regulators said on July 23.

Expectation

"I'd have expected more," said Bernstein. "Only seven banks in Europe have to raise capital. That's fewer than I expected."

Citigroup Inc. wrote in a report dated July 23 that equity and debt markets will rate European banks using harsher stress scenarios than the Committee of European Banking Supervisors, which ran the assessments of 91 lenders.

"Funding, equity and debt markets will tier banks based on banks' perceived solvency position under a market-realistic stress scenario," Citigroup analysts including Stefan Nedialkov wrote in the report.

The test could be "harsher than the CEBS test and include stressing the banking book," they said.

European governments are using their first coordinated stress tests to reassure investors about the health of financial institutions after the debt crisis pummelled the bonds of Greece, Spain and Portugal.

Rising budget deficits in Europe raised concerns the global economic recovery may falter, contributing to a slump in global stock markets.

The Stoxx Europe 600 Index has fallen 5.9 percent from this year's high on April 15, while the US's Standard & Poor's 500 Index has tumbled 9 percent and the MSCI Asia Pacific Index has lost 8.6 per cent.

Asian stocks rose today in the first trading session after the stress test results were released. The MSCI Asia Pacific Index climbed 0.5 per cent to a one-month high.