The Financial Supervisory Authority of Norway (Finanstilsynet) published an inspection report on Sparebanken Møre covering its credit practices, use of internal ratings-based (IRB) models for capital requirement calculations, IFRS 9 impairment practices, and governance and internal control on the credit area. The review identified shortcomings in risk-parameter setting and model use that contributed to underestimated capital requirements, alongside weaknesses in compliance with the bank’s own credit assessment guidelines. Key findings include deviations from the Capital Requirements Regulation in how collateral is recognised in loss given default (LGD), including reliance on values for unfinished objects, insufficient assessment of dependency between collateral values and borrowers’ repayment capacity, and treatment of sureties within LGD. Errors in setting the corporate size parameter (S) and applying the small and medium-sized enterprise supporting factor, including use for large corporate customers without consolidated financials, led to understated Pillar 1 capital requirements. The IRB system was assessed as playing a limited role in credit granting and pricing, particularly for mortgages, with no clear link between pricing and IRB-measured risk. Finanstilsynet also highlighted limited IFRS 9 staging validation, sensitivities and control weaknesses in expected credit loss calculations, shortcomings in adherence to internal limits for large exposures, issues in forbearance reporting in FINREP, gaps in assessing owners’ financial support, and lack of sufficiently adverse scenarios in some servicing-capacity analyses. In governance, mandates and reporting lines for second-line control functions were not sufficiently clear, and the bank was asked to formalise controls around “on-behalf-of” authorisations to protect independence. Sparebanken Møre’s board has initiated measures, including a broader review of the collateral and LGD framework and changes to routines for S/SME factor assessment and FINREP reporting. Finanstilsynet requested a written account of follow-up by 1 October 2026 and will continue follow-up through 2026, including in connection with the bank’s application for new retail IRB models.
Norwegian Finanstilsynet 2026-04-13
Financial Supervisory Authority of Norway finds Sparebanken Møre understated capital requirements and weak use of IRB models in credit decisions
The Financial Supervisory Authority of Norway published an inspection report on Sparebanken Møre identifying deficiencies in credit risk modelling, including collateral recognition in loss given default, use of corporate size parameters and the SME supporting factor, and limited integration of internal ratings-based models into credit granting and pricing. The authority also found weaknesses in IFRS 9 impairment practices, large exposure limit adherence, forbearance reporting, and governance and internal control arrangements, and noted that the board has initiated remedial measures.