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Euro zone candidate Lithuania gains ECB scrutiny of top lenders
May 8, 2014 / 5:51 PM / in 4 years

Euro zone candidate Lithuania gains ECB scrutiny of top lenders

* Decision on Lithuania’s 2015 euro zone bid due in July

* Lithuania has begun ECB-style banking review

* Bank of Lithuania says review is “in co-operation with” ECB

* ECB says work will not prejudge outcome Lithuania euro zone bid

By Laura Noonan

LONDON, May 8 (Reuters) - Lithuania’s top lenders have effectively been admitted to the euro zone’s landmark banking tests as the country prepares to join the currency union next year.

The Baltic state, which has long sought inclusion in the European Central Bank’s (ECB) assessment, has now secured the ECB’s involvement in its own parallel review.

A source familiar with the Lithuania review, the details of which have only been finalised in recent days, said it would place the country’s top lenders under the same scrutiny as the euro zone‘s.

The ECB’s comprehensive review of the euro zone’s 128 most important lenders is designed to banish lingering doubts about their health before the ECB takes over as the region’s banking supervisor in November.

Lithuania had lobbied for inclusion in the ECB review because successful navigation of the tests would give the country’s three biggest banks equal footing with other euro zone lenders when they come under the new supervisory regime.

A second source confirmed that the Baltic state’s banks are now involved in the ECB process but would not give further details of the exercise covering the Lithuanian offshoots of Nordic banks Swedbank, DNB and SEB .

Aldona Jociene, Director of the Prudential Supervision Department of the Bank of Lithuania, said that Lithuania had begun “co-operation” with the ECB over the banking health checks but would not elaborate on the extent of its involvement.

PREPARATIONS MADE

The first source confirmed that Lithuania had hired auditors in the past few days to carry out the health check, mirroring moves taken by national supervisors across the 18-country euro zone in recent months.

A Frankfurt-based ECB spokesman, meanwhile, acknowledged that Lithuania had contacted the ECB about the preparatory efforts it would make ahead of joining the euro zone, focusing on the comprehensive assessment.

“The ECB has made clear that such contacts can in no way prejudge the assessment of convergence by the ECB,” the spokesman added, in a reference to a formal decision on Lithuania’s EU accession that is not due to be taken until July.

By starting its own review now, Lithuania aims to help its banks slot in to the formal ECB process smoothly if the July decision on euro zone entry goes its way.

An Oslo-based spokesman for DNB declined comment, as did a Stockholm-based spokesman for Swedbank. SEB could not immediately be reached for comment.

Lithuania is beginning its tests two months later than the rest of the euro zone, where many banks have described the timetable as ambitious, given the vast volumes of data that must be submitted by lenders.

Neither the ECB nor the Bank of Lithuania would comment on whether the Lithuanian tests would be held to the same timetable. The ECB has insisted that it will meet an October deadline to complete the euro zone tests.

The results of the ECB review will feed into EU-wide stress tests that will decide whether Europe’s banks should raise more capital so that they could deal with potential future crises without needing publicly funded rescues. (Editing by David Goodman)

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