Denmark’s Financial Supervisory Authority (FSA) has warned Danske Bank for underestimating the risk of losses in a part of its retail lending business.
FSA said that the bank failed to submit any evidence as to why a group of consumer debt assets deserved a lower risk weighting than other loans, as reported by Bloomberg.
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The Danish financial regulator ordered Danske to raise its risk-weighted retail assets by DKK2.7bn ($485m).
FSA deputy director Kristian Vie Madsen was quoted by Bloomberg as saying: "This is a focus area.Stricter capital rules help very little if banks are then able to decrease their risk-weighted assets without also having decreased risk."
This is the second time Danske has been warned for its lackluster practice of undervaluing risky assets during the last 13 months. In June 2013, the FSA ordered Danske to raise mostly corporate assets by nearly DKK100bn.
Danske was one among the four lenders, which failed to obtain correct risk weights from the FSA for their consumer loans. The other banks include Jyske Bank, Nykredit and Laan & Spar Bank.
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By GlobalDataSince the onset of financial crisis of 2008, the banks’ risk-weighting practices are coming under heightened scrutiny across the globe as governments do not want to allow reoccurrence of the worst.
The European Central Bank has launched an extensive probe into the asset valuations of 128 of the region’s largest banks. Denmark’s FSA is collaborating with the European Banking Authority to assess Danish lenders.
