| LONDON, June 7
LONDON, June 7 Next year's stress test of top
European Union banks will include tougher accounting for soured
loans and a stricter exclusion of funds from asset sales which
have not yet been completed, the bloc's banking watchdog said.
The theoretical economic and market shocks 49 banks will
face will not be published until next year, but the European
Banking Authority (EBA) issued a draft "methodology" on its 2018
health check for public consultation on Wednesday.
The "stress test" will probably be the last conducted from
the London base of the EBA, which must move to an EU state due
to Britain's departure from the bloc.
As in the 2016 test, there will be no pass or fail mark for
each bank when the results are published in mid-2018.
The test, based on end-2017 balance sheets, will look at
shocks from bad loans, market turbulence, and the impact of
fines for misconduct.
Additionally, in January 2018 banks in Europe will have to
comply with a new accounting rule, known as IFRS 9, which forces
them to provision for souring loans much sooner than at present.
The new book-keeping rule is expected to force banks to hold
more capital, though regulators have decided to give lenders
time to find this extra capital in practice.
EBA, which has repeatedly warned that dealing with bad loans
must be a top priority for banks, said banks will have to
reflect the impact of the new rule at the start of the test and
throughout its theoretical three-year duration.
And lenders will not be able to factor in any uplift to
capital from a sale due to happen during the test period.
"Any divestments, capital measures or other transactions
that were not completed before 31 December 2017, even if they
were agreed upon before this date, should not be taken into
account in the projections," EBA said.
The European Central Bank, which supervises 35 of the banks
being tested, was forced to justify allowing Deutsche Bank
to include proceeds from a sale of a stake in a
Chinese lender in its 2016 stress test result.
The sale did not actually go ahead during the test, even
though it boosted Deutsche Bank's capital buffer in the result.
(Editing by Alexander Smith)