The Financial Supervisory Authority of Norway has published an on-site inspection report on Sparebank 1 Hallingdal Valdres assessing internal governance, credit risk management and expected credit loss assessments under IFRS 9. Finanstilsynet finds it blameworthy that the bank did not have sufficient governance and control of capital needs in the context of high lending growth and negative migration in the loan portfolio to ensure compliance with the combined capital buffer requirement, and it identifies weaknesses in both credit underwriting and the timely identification and provisioning of deteriorating exposures. The inspection (10–11 September 2024) reviews a breach of the combined capital buffer requirement as at 31 December 2023, including weaknesses in forecasting and risk reporting that contributed to the bank not being able to report the breach within required deadlines and having recovery indicators set too low. Credit risk observations include shortcomings in adherence to the internal credit approval framework for corporate lending, rapid growth in financing of speculative real estate investments subject to a 150% risk weight (calculation basis rising from NOK 248 million in Q2 2022 to NOK 1,040 million at end-2023), and questions about the bank’s expansion of corporate lending outside its historical primary area into Oslo and surrounding areas. Finanstilsynet also found a high number of errors in the bank’s grouping of connected counterparties, affecting reporting and monitoring of concentration risk. On IFRS 9, Finanstilsynet questions whether loans with a significant increase in credit risk are identified and staged in a timely way, points to indications such as direct migrations from stage 1 to stage 3 and weak documentation for overrides, and notes deficiencies in routines and practice for individual loss calculations, including that expected cash flows were previously not discounted (the routine has since been changed). Finanstilsynet asks the board to strengthen and document risk monitoring, capital management and IFRS 9 processes, and will follow up connected counterparty grouping through a separate supervisory process.
Norwegian Finanstilsynet 2025-03-25
The Financial Supervisory Authority of Norway issues inspection report criticising Sparebank 1 Hallingdal Valdres for weak capital buffer control and IFRS 9 credit risk practices
Norway's Financial Supervisory Authority's report on Sparebank 1 Hallingdal Valdres highlights deficiencies in governance, credit risk management, and IFRS 9 compliance. The bank failed to meet the combined capital buffer requirement due to inadequate governance amid high lending growth and negative loan portfolio migration. Issues include weak credit underwriting, insufficient risk reporting, and errors in connected counterparty grouping, with Finanstilsynet calling for strengthened risk monitoring and capital management.