European banks are strong enough to withstand any sharp losses on their holdings of government debt issued by Greece, Portugal, Spain and Ireland, according to a leading credit agency.

Rating agency Moody's said it had done its own "stress tests" on banks, amid unease about the ability of European banks to cope with new loan problems in the public and private sectors in some European countries.

Its analysis showed that banks would be able to cope without having to raise extra funds from shareholders, and said it did not expect its findings to lead to any changes in its credit ratings.

Moody's had tested 30 banks in 10 European countries.

"Based on our stress test, we believe that these banks would be able to absorb losses that could arise from such exposures without requiring capital increases - even under worse-than-expected conditions," one of the authors, Jean-François Tremblay, said.

"The average regulatory capital ratio of the banks that we stress tested is well above nine per cent."

Moody's said that "recent EU-wide debt market volatility has highlighted investor concerns and the lack of clarity around banks' cross-border exposures".

Moody's found that the cross-border exposure of banks in Greece, Portugal, Spain and Ireland "to a range of private claims, such as residential mortgages and business loans, are greater than those related to government debt".

And it observed: "Based on the severe loss assumptions made by Moody's, a forced sale of sovereign debt at depressed market prices would have a greater, although still manageable impact when measured against banks' capital levels."

Concerning their exposure to bonds issued by governments to cover budget overspending, the banks could count on support from the European Central Bank.

The ECB has adopted a policy of buying up bonds issued by countries in serious difficulties over their public finances.

Regarding loans to the private sector, to businesses and households, the banks would be able to cope because any eventual losses would be spread over several years and would be countered in part by expected earnings.