INTERVIEW-Banks may have to reveal balance sheet gaps ahead of health check results-EBA


MILAN, March 4 (Reuters) - Euro zone banks could be forced to disclose any major balance sheet gaps discovered in a health check on the industry before the results are made public in October, the head of the European banking watchdog said on Tuesday.

Andrea Enria, chairman of the European Banking Authority (EBA) which will help the European Central Bank scrutinise 128 banks, dismissed concerns the findings of the review might be leaked ahead of their official release.

Bankers and national regulators say in private they are worried that information about how banks are faring during the lengthy, two-stage review might be passed on in bits and pieces before October, influencing investment decisions.

"The process is very complex but it is handled by small teams of officials that are used to respect confidentiality agreements. I don't anticipate problems of this kind," Enria told Reuters in an interview.

The ECB is giving the 128 banks a thorough quality check and then a stress test, hoping to unearth hidden losses, revive lending and restore investors' trust in the sector which has been slow to recover from the financial crisis.

The review also aims to clean up the banks before the ECB takes over supervision of them from November.

First information from the asset quality review is expected in July, months before the stress tests finish. The ECB plans to condense all results and release them in one go in October.

Enria said that in any case banks where the ECB had found significant shortfalls such as insufficient loan-loss provisions could be asked to take action and inform investors before October.

"If inspectors looking at a bank's assets realise that it has improperly classified some assets or it has insufficient provisioning, they can ask the bank to take this into account in its financial statements and its communications to the market," he said.

The issue of how and when market-moving information will be disclosed is a sensitive one.

The ECB on Friday denied a report in German magazine Der Speigel that it was pressing the European Union markets watchdog to grant banks exemptions from having to publish information relevant to their share price immediately during their balance sheet review.

Two sources familiar with the procedures also said on Friday the ECB was in talks with the European Securities and Markets Authority to agree on procedures for how leaks and rumours should be handled.

Enria rejected accusations in the Italian press that the EBA was forcing banks to cut back on lending by asking them to boost their capital at a difficult time.

"Evidence shows that banks that put up greater resistance to raising fresh capital are those less inclined to lend," he said.

Among the 15 Italian banks that are under scrutiny by the ECB, seven are already planning to tap investors for a total of more than 7.5 billion euros ($10 billion).

Saddled with 156 billion euros in bad debts after the country's economy shrank 9 percent during its longest post-war recession, Italian banks have sharply cut back on lending over the past two years.

They are also seeking to get rid of bad debts but sales are held back by the gap existing between the book value of such assets and the prices investors are ready to pay for them.

The Bank of Italy is looking at ways to help banks, including offering a public guarantee to those that join forces to offload problematic debts, Governor Ignazio Visco told a newspaper last week - a proposal which Enria welcomed.

"It is not up to me to indicate the path Italian authorities should follow, but Visco's idea seems useful," Enria said.

"For us the most important thing is that there is a process that eases as much as possible a clean-up of banks' balance sheets." ($1 = 0.7260 euros)

($1 = 0.7277 euros)

(editing by Silvia Aloisi and Jane Merriman)