Statement of inspection in Danske Bank A / S (appropriations of Finnish corporate loans)
In June 2019, the Danish FSA was on inspection at Danske Bank’s Finnish branch. The purpose of the inspection was primarily to assess the bank’s risk appetite and practice in granting loans to new or existing corporate customers in Finland. This included loans for the construction, development and rental of real estate. The purpose was also to assess whether the bank’s risk analyzes when granting loans are sound and reflect the bank’s credit policy.
Summary and risk assessment
The Financial Supervisory Authority reviewed 60 appropriations of loans that the bank had processed in the period after 30 June 2018.
The Danish FSA considers that the bank’s risk appetite for corporate lending in Finland is on a par with other banks in the country and with comparable units in the bank.
The investigation gave rise to orders that the bank’s statement of loans to a customer or group of interrelated customers include all loans to the customer or group of interrelated customers. This applies both to customers linked by control and to customers where the bank must identify financial dependency.
The bank’s risk analysis can be improved on some points. This significantly contributes to illuminating the risk if the bank analyzes a customer’s liquidity on the basis of harsh but not unrealistic scenarios. Stress tests should be conducted before significant extensions and regularly as part of credit management.
Although Finland has not experienced such large fluctuations in property prices as other Nordic countries, real estate is traded on a larger scale and at significantly higher values than before. The bank is active in real estate financing, primarily in selected major cities. There has been great demand so far, but there is now a slowdown in sales of new apartments. The Danish Financial Supervisory Authority pointed out that the bank did not underestimate the risk, especially for loans to contractors with high balance sheet growth and a large increase in interest-bearing debt.
Finanstilsynet inspection statement