Norwegian Financial Supervisory Authority urges Sparebank 1 Boligkreditt to strengthen liquidity stress testing, LCR reporting and green covered bond readiness

The Norwegian Financial Supervisory Authority published a supervisory report on its on-site inspection of Sparebank 1 Boligkreditt AS, assessing governance and control and exposures to liquidity and funding risk. The report calls for further work to support “green” covered bond (OMF) issuance, more robust liquidity stress testing, and stronger board reporting of key liquidity indicators. Finanstilsynet expects the liquidity stress test to be reviewed to include scenarios that would pose major challenges if they occurred, and for liquidity stress tests to be carried out quarterly. It also encourages the firm to provide the board with charts based on daily observations for the Liquidity Coverage Ratio (LCR) and overcollateralisation, and reiterates expectations around meeting minimum requirements for the LCR and the 180-day liquidity buffer in the cover pool, alongside the minimum overcollateralisation requirement. On LCR composition, the report highlights diversification considerations and recommends that covered bonds backed by Norwegian property loans account for no more than 50% of total LCR liquid assets, alongside broader geographic and issuer diversification. The report notes that planned improvements to the stress testing framework should be evidenced in future internal liquidity adequacy assessment process (ILAAP) documentation and quarterly risk reports to the board, and requests that a copy of the report is sent to the external auditor.