The Norwegian Financial Supervisory Authority published an on-site inspection report on Trøndelag Sparebank, warning that rising defaults in the corporate loan book, rapid lending growth and weaknesses in governance and credit risk controls increase the risk of materially higher loan losses, while provisions for higher-risk and credit-impaired exposures remain low. Non-performing corporate loans rose to 9.9% of the corporate portfolio by end-H2 2024 (NOK 235 million), compared with 3.9% at comparable banks, driving the overall non-performing ratio up to 3.4% of gross lending. The report highlights a high-risk corporate profile alongside strong growth, including 22.7% year-on-year growth in corporate lending by Q2 2024 versus 7.5% at peers, and 25.1% of corporate exposures in the bank’s highest risk classes (8–12). Finanstilsynet assessed loss allowances as insufficient, with stage 3 coverage of 10.9% versus 18.3% at peers and stage 2 coverage of 1.2% versus 2.2%, and pointed to weak application of the loss rules, including incomplete tagging and reporting of payment concessions (forbearance) and default. It also identified shortcomings in internal control and board oversight, including limited deviation follow-up and reporting, stretched second-line control capacity, weaknesses in credit decision documentation and practices (cashflow and equity assessments, collateral valuations and limited use of covenants), the absence of routines for assessing risk in new or materially changed products and processes, and significant anti-money laundering compliance gaps requiring remediation. Finanstilsynet requested that the bank submit, within one week of receiving the report, its action plan with board minutes documenting the latest status review, as well as minutes and papers from the credit committee and board covering specified credit cases. The supervisor also noted it will revert on expectations for the “retail exposures” category once the European Banking Authority has issued its recommendations on the diversification requirement.
Norwegian Finanstilsynet 2025-03-05
Norwegian Financial Supervisory Authority flags high corporate loan defaults and low IFRS 9 provisions at Trøndelag Sparebank
The Norwegian Financial Supervisory Authority's inspection report on Trøndelag Sparebank highlights increased risks from rising corporate loan defaults, rapid lending growth, and governance weaknesses. Non-performing corporate loans reached 9.9% of the portfolio by end-H2 2024, with insufficient loss allowances and significant internal control shortcomings. The bank must submit an action plan and documentation, with further guidance on retail exposures pending European Banking Authority recommendations.