April 21, 2018 / 10:26 AM / a year ago

ECB warns banks, auditors over use of new accounting rule-paper

FILE PHOTO: The headquarters of the European Central Bank (ECB) and the Frankfurt skyline with its financial district are photographed on early evening in Frankfurt, Germany, March 25, 2018. REUTERS/Kai Pfaffenbach

MILAN (Reuters) - The European Central Bank has warned lenders it is checking their 2017 earnings to make sure they haven’t taken improper advantage of a new accounting rule in order to minimize the hit from loan losses, an Italian daily reported.

Il Sole 24 Ore newspaper cited a letter the ECB sent to banks under its supervision and the main auditing firms spelling out its concerns connected to the coming into force of the IFRS9 accounting rule.

The new rule, in place from the start of 2018, forces lenders to book expected, and no longer just incurred, losses. Under a temporary regime, banks can spread over five years the impact of rule’s initial application. Also, the impact is only on banks’ capital and not their earnings.

The ECB said banks may have postponed booking loan losses to the start of this year in order to benefit from the ‘first time adoption’ regime, Il Sole reported.

The ECB has also asked auditors to pay special attention to this issue when reviewing banks’ 2017 financial statements, the paper added.

The ECB declined to comment.

Il Sole said that Italy’s larger lenders ruled out having to revise their 2017 accounts because they believed they had applied the new rule correctly.

In publishing last year’s accounts, all main Italian banks have said they would book significant writedowns at the start of 2018 in connection with the coming into force of the IFRS9 rule.

Reporting by Valentina Za, Editing by Ros Russell

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