UPDATE 3-Greece delayed bank stress tests to avoid EU overlap

* Bank of Greece puts off bank stress tests until Oct

* Oct tests to come after largest lender's rights issue

* Greek banks stress-tested in July, only 1 failed

* Fitch says Greece barely holding on to investment grade

(Adds central bank statement, Fitch interview)

By George Georgiopoulos and Lefteris Papadimas

ATHENS, Sept 20 (Reuters) - Greece this summer delayed stress-testing its banks so as not to overlap with EU-wide bank tests, instead postponing its assessment until October -- after its largest lender completes a big rights issue.

Greece said it decided on the delay after consulting with the EU Commission, the IMF and the ECB, on the view that a new simulation would come too close to the EU-wide assessment in July and add no new information, the country's central bank said on Monday.

The tests are aimed at checking that banks, struggling with rising bad loans, deposit outflows and a lack of access to the wholesale funding market, are well-enough capitalised to weather the country's debt crisis and an austerity-induced recession.

Greece has agreed to stress test its banks quarterly to strengthen the system's supervision as part of an emergency 110 billion euro funding package clinched with the International Monetary Fund (IMF) and its euro zone peers in May.

Big banks took part in a broader round of stress tests by the Committee of European Banking Supervisors (CEBS) in July with only one, ATEbank (AGBr.AT), failing to make the grade under the simulation's most adverse scenario.

The Greek central bank denied that its decision was related to government actions or upcoming corporate actions. [ID:LDE68J1GV]

"The decision to postpone was taken in the summer, well before the decision of the government to participate in the roadshow and the recent announcement of intended corporate actions," it said in a statement.

The heavily indebted country's international lenders -- the IMF and its euro zone peers -- want to ensure banks can cope as austerity policies to slash deficits deepen the recession.

"The delay is not significant. The CEBS stress test in a way dislocated the pre-arranged Bank of Greece-IMF tests," said UBS analyst Alexander Kyrtsis.

The main measure of investors' faith in Greece -- the government's cost of borrowing compared to German government bonds -- has fallen slightly but remains more than twice that of the next most risky bet in the euro zone, Ireland.

TIME FOR NATIONAL BANK

Fitch told Reuters in an interview on Monday that Greece was barely holding on to its investment grade rating despite fiscal progress. Moody's and Standard & Poor's gave Greece junk ratings this spring. [ID:nSLAKKE6CV]

"The country is clinging on to its investment grade rating, but just by a fingernail," said Fitch Rating's senior analyst for Greece Chris Pryce.

The government last week kicked off new monthly auctions of short-term debt, comfortably selling more than a billion euros ($1.5 billion) of six-month bills but still paying a high yield despite progress in cutting its deficit.

Analysts said the delay in the stress tests would allow for developments in Greek banking to settle, mainly a 2.8 billion euro capital increase by National Bank (NBGr.AT) but also a report by privatisation advisers and nine-month results.

"The central bank wants stress tests to encompass a series of upcoming developments," said Natasa Roumantzi, head analyst at Piraeus Securities. "Firstly, it's been a short time since the July stress tests and secondly it wants to see the completion of National Bank's capital boost."

NBG is set to boost its capital via a rights issue, a convertible bond and the sale of a stake in Turkish unit Finansbank (FINBN.IS) to give it a bigger cushion to cope with the economic slump at home and a liquidity quagmire that has forced Greek banks to rely on the European Central Bank for funding.

Funding from the lender of last resort reached 19 percent of the system's assets in August.

NBG's move also addresses the new capital rules drawn up by global banking regulators known as Basel III. The rights issue will run from Sept. 27 to Oct. 11.

Analysts said that with the rights issue window being small, about 10 days, there would be a limited ability for the market to fully digest stress test information.

In the pan-European tests in July, ATEbank's (AGBr.AT) Tier 1 ratio fell to 4.36 percent under the simulation's most adverse scenario, below a 6.0 percent safety threshold. [ID:nATH005602]

The CEBS test was tough for Greek lenders but showed on average that banks were strong enough to cope with a rise in non-performing loans to 17 percent by the end of 2011 without needing significant amounts of capital.

A senior banker at a large Greek bank said the Bank of Greece stress tests would likely be more tailor-made compared to the CEBS test, which was based on across the board assumptions.

"If the IMF-Bank of Greece stress test is similar to the CEBS one there is no reason to run it. It will either be more punitive on loan-losses or on sovereign exposure in some way," Kyrtsis said.

Greek bank shares .FTATBNK added to losses, trading 3.3 percent lower late in the session, underperforming a 2.1 percent slide in the broader market .ATG.