UPDATE 1-Bank of England adapts bank stress test for pandemic era

(Adds more detail)

By Huw Jones

LONDON, Jan 20 (Reuters) - The Bank of England said on
Wednesday the aim of its banking stress test this year is to
check if banks can continue helping the economy during the
pandemic and if a return to more normal levels of dividends is
possible.

The British central bank cancelled its annual health check
of banks last year so they could focus on keeping credit flowing
to an economy hit by its worst downturn in 300 years due to
COVID-19 lockdowns.

Stress tests focus on the ability of banks to face major
theoretical shocks, but the focus now changes given the economy
has entered a real stress with COVID-19, the BoE said.

"At this point stress tests are used to assess whether the
buffers of capital that banks have built up are large enough to
deal with how the prevailing stress could unfold," the BoE said
in a statement.

The BoE said this year's test of leading banks will be
conducted in a "staggered" way, with banks submitting their
initial projections in April on coping with a range of market
shocks without going below minimum capital levels.

The BoE will then analyse the data and publish aggregate
results in the summer, with the usual bank-by-bank outcomes made
public in the fourth quarter.

After the economy went into its first lockdown in March last
year, the BoE told banks to suspend dividend payments to
preserve capital. In December, the central bank set out
"guardrails" for relaxing its curbs on bank dividends.

"As noted in the December 2020 Financial Stability Report,
the results of the 2021 test will also be used as an input into
the Prudential Regulation Authority's transition back to its
standard approach to capital-setting and shareholder
distributions through 2021."

To help banks with the different timetable this year, the
BoE said their "ring fenced" retail banking units would not form
part of the test.
(Reporting by Huw Jones, editing by Louise Heavens and Jane
Merriman)