Swedish consumer bank Handelsbanken has been urged by the country’s financial watchdog to change how it calculates risk at its UK subsidiary, Reuters reported.
This determines the amount of capital the bank has to provide to cover for potential losses.
Few European banks are allowed to use own risk models, while others have to use a standard model provided by the country’s regulator, to assess their risk of losses.
From next year, Handelsbanken has to use the standard model, the report added.
In a statement, Handelsbanken said: “The Swedish Financial Supervisory Authority has decided that, from 1 January 2021, the bank is also to use the standardised approach at group level, when calculating the capital requirement for credit risk at Handelsbanken.
“The risk exposure amount at the bank will consequently increase by approximately SEK65bn ($7.39bn) in conjunction with the introduction of the new method.”
After changing its risk model, the bank said its common equity tier 1 (CET1) ratio as of 30 June 2020 remained over the target ratio range, on a pro forma basis.
Commenting on the bank’s adoption of standard risk model, Danske Bank analyst Andreas Hakansson said: “This can affect their future dividend payouts, so it’s clearly a negative.”
Kepler Cheuvreux analyst Robin Rane said that the bank has been using an internal model for assessing risk on property. This sector has most of its exposure in the UK.
Rane said: “The difference between the standardised method and the internal one they had been using is quite high.”
Amid the Covid-19 pandemic in July 2020, Handelsbanken’s loan losses were relatively lesser than its peers. This was praised by rating agency Moody’s, Reuters said.