* Accounting rules prevent undervaluation of loan assets
* Expected loss model could be alternative for valuing loans
* Regulator expects more timely recognition of losses
(Adds regulator comment)
AMSTERDAM, June 24 (Reuters) - Bank loan portfolios are probably overvalued and may contain hidden losses which could materialize during the recession, co-chairman of the Financial Crisis Advisory Group, told a conference on Wednesday.
"Overall, it does not seem likely that bank assets are being hugely undervalued. Most probably, the opposite has been the case," said Hans Hoogervorst in a prepared speech for an IASB conference in Milan.
Hoogervorst, who also heads the Dutch market regulator AFM, said U.S. stress tests showed traditional loan assets still have a huge loss potential in coming years.
International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FSAB) set up the advisory board last year to consider financial reporting issues resulting from the credit crisis.
Banks value their loan portfolios at amortized costs and not at fair value, making it impossible that these assets are valued too low in bank balance sheets, Hoogervorst said.
Banks and insurers like Dutch ING and Aegon have increased provision for loan losses or expect more asset impairments this year, and the European Central Bank warned last week banks could suffer from emerging market loan losses.
Hoogervorst encouraged the IASB to look at alternatives for the incurred loss model which is currently used because it may provide information on losses too late.
The expected loss model was an alternative to consider but Hoogervorst warned banking regulators, who he said were keen on the model, because this alternative may force banks to take big writedowns during a sudden economic slump.
"My feeling is that the net-effect of these changes will be to make accounting rules more conservative, leading to a more timely recognition of losses," Hoogervorst said about changes to fair-value accounting rule IAS 39.
The IASB, which sets accounting rules used in over 100 countries, including the 27-nation EU, has agreed to revamp its fair value or mark-to-market rule, which has forced many banks to take billions in writedowns as market prices fell. (Reporting by Gilbert Kreijger; Editing by Jon Loades-Carter)