The Financial Supervisory Authority of Norway published an inspection report on Romsdalsbanken (Romsdal Sparebank) following an onsite review in November 2024 covering internal governance and control, credit risk management and IFRS 9 expected credit loss assessments. The authority highlights rapid growth across retail and corporate lending, a relatively high share of corporate exposures with a material proportion in default, high property-sector exposure and concentration risk in the largest and most risk-exposed engagements, alongside substantial scope to strengthen credit practices and ensure more forward-looking loss estimates. Key findings include weak and inconsistently documented assessments of debt-servicing capacity, collateral and realisation values, and deviation follow-up, with credit policies and engagement monitoring requirements needing clearer, testable criteria. Governance weaknesses cited include internal control reporting that is largely descriptive and insufficiently focused on identified risk issues and concrete measures, and second-line risk and compliance functions with limited formalised independent controls underpinning quarterly reporting. The report also points to gaps in the delegation matrix, including an unclear two-pairs-of-eyes principle for credit decisions, limited use and systematic follow-up of covenants in corporate lending, and deficiencies in forbearance and “unlikely to pay” (UTP) tagging and reporting. On IFRS 9, the authority criticises an underestimating probability of default model without compensating management overlays, limited macroeconomic adjustments, and provisions that appear low relative to peers, noting that in the second quarter of 2024 corporate loan provisions totalled NOK 26.7 million and the stage 3 coverage ratio was 16.2% versus 25.7% in comparable banks, with a separate error leading to zero provisions for four exposures (NOK 2.7 million) that the bank corrected in October 2024. The bank has updated routines and tightened collateral haircuts and scenario assumptions, and increased stage 3 provisions in the fourth quarter of 2024, while the authority notes stage 2 coverage fell from an already low level. For follow-up, the authority requests a copy of the minutes from the board meeting at which the inspection report is considered and asks the bank to provide the report to its auditor.
Norwegian Finanstilsynet 2025-03-20
Financial Supervisory Authority of Norway finds major shortcomings in Romsdalsbanken’s credit governance and IFRS 9 loss provisioning
The Financial Supervisory Authority of Norway released an inspection report on Romsdalsbanken, highlighting rapid growth in lending, high property-sector exposure, and concentration risk. Key findings include weak credit risk management, governance deficiencies, and inadequate IFRS 9 provisions. The bank has since updated routines and increased provisions, with the authority requesting further documentation for follow-up.