ECB warns banks, auditors over use of new accounting rule

MILAN, Apr 21 (Reuters): The European Central Bank (ECB) 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 minimise 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.