* ECB to reveal further detail of its bank health check
* News conference scheduled for 1200 GMT
* Will update on progress, definitions, portfolio selection
By Eva Taylor
FRANKFURT, Feb 3 The European Central Bank will
reveal more detail on Monday on how it plans to go about
checking that top euro zone banks have the risks on their
balance sheets under control.
The ECB's asset quality review, or AQR, is part of a broader
examination that also includes a stress test to see how banks
hold up under shock scenarios, to avoid nasty surprises once the
ECB takes up responsibility for supervising them from November.
It aims to encourage banks to recognise losses on loans or
investments that have soured over time, allowing them to regain
investors' trust and free up capacity to grant new loans to help
along the euro zone's fragile economic recovery.
"The devil will be in the detail and the risks of lowest
common denominator and compromise in such a multilateral process
are legion," said Morgan Stanley's Huw van Steenis.
"This is why the market still has many doubts on how
cathartic a process the AQR and stress tests will be."
The ECB will address at least some of such doubts on Monday
by laying out, for example, how it will define when a loan has
turned bad and what the next steps will be.
On Friday, the European Banking Authority (EBA) set out key
parameters for the stress tests it coordinates, which imply that
the probe will be tougher than previous ones.
The two reviews will eventually feed into each other and
their timings will overlap somewhat, but the overall result
-spelling out the size of any capital shortfall - will only be
published in October.
Analysts have estimated the tests will show the banks need
up to 100 billion euros of fresh capital.
Over the past couple of months, the ECB has collected vast
streams of data from the 128 banks that are taking part in the
exercise, and a deadline for some lenders to deliver extensive
detail on their trading books and risk models is approaching.
National supervisors have also identified particularly risky
portfolios they would like included in the in-depth review,
which the ECB now needs to review and approve.
In Germany, for example, shipping is likely to be looked at
closely. The country was a global leader in ship lending before
the financial crisis struck and the global economic downturn
crimped trade flows, wiping out the profits that shippers need
to pay off their loans.
Over the next couple of months, ECB inspectors will make
sure the lenders have set aside sufficient capital for possible
loan losses, check for data accuracy and run on-site reviews -
the most complex part of the assessment.
Banks and investors are keen to find out how the ECB will go
about this stage, which portfolios and assets will be looked at,
and how the ECB defines certain key criteria, such as when a
loan has gone bad.
Morgan Stanley sees Italy, the Netherlands and Austria in
focus when it comes to non-performing loans, arguing that in
Italy these continue to grow with no slowdown seen.
Italian lenders have been hard hit by writedowns on soured
loans as the country's deepest recession in 60 years takes its
toll on households and businesses.
Federico Ghizzoni, head of Italy's top lender UniCredit
told Reuters TV last month the AQR would reveal that
some smaller Italian lenders need additional capital, and that
it could also trigger a new consolidation wave among them.
(Editing by Catherine Evans)