The Financial Supervisory Authority of Norway published an inspection report identifying weaknesses in Soknedal Sparebank’s governance, credit risk management and lending practices, particularly in the corporate portfolio. Weak loan growth, high costs and low profitability have raised the bank’s business risk, while limited staffing and the concentration of responsibilities among a few employees create material key-person risk. The authority found that the bank’s credit limits and portfolio composition, including sector concentrations and large exposures, were not sufficiently aligned with its resources and risk-bearing capacity. Credit files frequently lacked adequate assessments of repayment capacity, collateral values and deviations from internal policies. The authority also identified shortcomings in consumer lending assessments, annual credit reviews, monitoring of higher-risk exposures, and the identification of forbearance and unlikely-to-pay cases. It warned that the bank may have incorrectly grouped large exposures, potentially leaving its largest customer-group exposure above the limit of 25% of core capital, and that outdated collateral values and its approach to individual IFRS 9 Stage 3 assessments could result in insufficient loss provisions. The authority expects the board to strengthen credit limits, approval authorities, exception management and reporting, supported by consistent and verifiable management information. The bank plans measures including a separate limit for performing high-risk corporate exposures, tighter approval authorities, quarterly reporting of lending exceptions, stronger forbearance and unlikely-to-pay identification, and a lower threshold for individual Stage 3 loss assessments.

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