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Danske Bank underestimated risky loans, according to FSA

FSA issues a warning to Danske Bank for an underestimation by 2.7 billion kroner


Banks assets are weighted by risk (Photo: Colourbox)

August 4, 2014
14:05

by Federica Palomba


Denmark's financial regulator warned Danske Bank to raise underestimated risk weights on consumer loans by 2.7 billion kroner, Bloomberg reports.

Scandinavia's second largest bank by assets has to correct the risk of losses in a part of its consumer debt assets, which was assigned a lower risk than other loans, the Financial Supervisory Authority said last week. 

Stricter capital rules are not so relevant "if banks decrease their risk weighted assets without having a correspondent decreased risk", explained Kristian Vie Madsen, deputy director at the Danish FSA to Bloomberg.

This is the second time the bank has been reprimanded since June 2013, when the FSA ordered it to raise mostly corporate risk-weighted assets by as much as 100 billion kroner. Danske Bank this year dropped an appeal against that order, which raised the bank’s capital requirement by 6.11 billion kroner.  

According to Danske Bank, the two rebukes are not related. “We have taken note of the order and have made the necessary adjustments,” said Peter Rostrup-Nielsen, Danske’s chief risk officer.

The FSA’s latest order left Danske’s total capital ratio substantially unvaried from 18.1 percent of risk-weighted assets as of March 31 to 18.6 percent as of June 30, the FSA said. 

Danske was one of four banks the FSA considered failed to assign the correct risk weights to consumer loans, along with Jyske Bank, Nykredit and Laan & Spar. 

A result of European co-operation 
To avoid economic crisis relapses the European Central Bank is heading an extraordinary investigation into the asset valuations of 128 of the region’s largest banks. Denmark’s FSA is collaborating with European Banking Authority to assess Danish lenders, Madsen said.



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