Norwegian Financial Supervisory Authority urges Sparebank 1 Næringskreditt to strengthen liquidity buffer diversification and stress testing

The Norwegian Financial Supervisory Authority (Finanstilsynet) published a supervisory report on Sparebank 1 Næringskreditt AS following an on-site inspection covering governance and control and the firm’s exposure to liquidity and funding risks. The findings focus on making board reporting more decision-useful, improving the composition of the Liquidity Coverage Ratio (LCR) buffer, and strengthening liquidity stress-testing. Finanstilsynet expects board reporting to include time-series graphs or tables for key indicators and, where management can deviate from internal liquidity reserve targets, for the board to also receive the liquidity reserve position against the regulatory requirement. For the LCR portfolio, it recommended limiting Norwegian covered bonds (OMF) backed by Norwegian property loans to 50% of total LCR liquid assets, alongside greater geographic diversification of collateral and OMF from multiple issuers, and noted that bank deposits cannot be included as LCR liquid assets. On stress testing, it called for more differentiated liquidity stress scenarios with better-documented assumptions, scenarios reflecting a downturn in the commercial real estate market, and reverse stress tests to quantify the shocks the firm can withstand. Sparebank 1 Næringskreditt indicated that the stress-testing comments will be incorporated in its next liquidity stress test, and Finanstilsynet expects the enhancements to be reflected in future Internal Liquidity Adequacy Assessment Process (ILAAP) work and quarterly board risk reporting. The supervisor also asked the firm to provide a copy of the report letter to its auditor.