Finanstilsynet warns that Sparebank 1 Østlandet is underestimating risk and capital requirements in its corporate loan portfolio, following a supervisory review dated September 21. According to the regulatory report, the bank faces a substantial risk of operating with overly low loss estimates and has shown a higher share of non-performing loans than competing regional banks.
Regulatory Findings and Credit Quality Weaknesses in Commercial Lending
Finanstilsynet’s review reveals that the overall quality of Sparebank 1 Østlandet’s credit files is varying and requires operational improvements. Many reviewed cases contained clear deviations from the bank’s internal credit policy or established industry standards, as stated in the official report. Of the bank’s total lending portfolio of 238 milliarder kroner, approximately 66 milliarder kroner goes to the corporate market. Nearly half of that corporate exposure consists of commercial real estate loans.
Commercial Real Estate Valuations and Capital Deficit Risks
Realization figures indicate that Sparebank 1 Østlandet has overestimated the value of collaterals tied to commercial real estate. Finanstilsynet highlights a significant risk that the bank operates with inadequate loss estimates, meaning its overall capital requirement may be underestimated. The bank has been criticized for incorrectly categorizing several large corporate engagements under the mass market designation. It also applied a supporting factor meant for small and medium-sized enterprises to customers that actually belong to large international corporate groups.
Bank Response and Historical Compliance Penalties
Led by Chief Executive Officer Klara Lise Aase, Sparebank 1 Østlandet stated that it is largely in agreement with the regulatory assessments and is actively implementing corrective measures. The board confirmed that the institution will address all identified shortcomings. This regulatory scrutiny follows an enforcement penalty issued in March of last year, when Finanstilsynet penalized Sparebank 1 Østlandet 30 million kroner for deficiencies related to anti-money laundering compliance.
Supervisory Context
Finanstilsynet specifically noted that Sparebank 1 Østlandet currently maintains a higher share of non-performing loans than its regional banking peers, reinforcing the regulator’s call for heightened attention toward deviation cases to prevent unwanted risk accumulation.
Finanstilsynet findings on credit quality and commercial real estate collateral values
What did Finanstilsynet discover during the review of Sparebank 1 Østlandet?
Finanstilsynet found that the bank’s credit file quality is varying, risk and capital requirements are potentially underestimated, and commercial real estate collateral values have likely been overestimated.
How large is Sparebank 1 Østlandet’s corporate loan book?
Out of a total lending volume of 238 milliarder kroner, the bank has around 66 milliarder kroner exposed to the corporate market, with nearly half dedicated to commercial real estate.
How has the bank responded to the criticism?
The board of Sparebank 1 Østlandet stated that it is largely in agreement with Finanstilsynet’s evaluations and is initiating measures to correct the highlighted vulnerabilities.