Danish FSA Assesses Lending Practices, Designates Danish SIFIs

Danish FSA must annually set a threshold value for the size of an institution's balance sheet, which institutions must exceed before they can be designated as SIFIs. The limit was DKK 3 billion in 2021. However, Danish FSA informs that it has set the limit at DKK 3.02 billion in 2022 and this affects the designation of Danish SIFIs. As a result, the Danish SIFIs are now Danske Bank A/S, Nykredit Realkredit A/S, Nordea Kredit Realkreditaktieselskab, Jyske Bank A/S, Sydbank A/S, DLR Kredit A/S, Spar Nord Bank A/S, and A/S Arbejdernes Landsbank. The Faroese SIFI groups designated as SIFIs are P/F BankNordik and Betri Banki P/F while the the Bank of Greenland continues to be the designated SIFI in Greenland. Danish FSA informed that the new SIFI designation model is per January 01, 2022 and has set out the category that each SIFI belongs to.

Danish FSA conducted an assessment to investigate whether three property credit companies comply with the rules on carrying out a creditworthiness assessment of the borrower. The assessment revealed that twoDanish FSA  of the three real estate credit companies that have been investigated have business practices that ensure that a thorough creditworthiness assessment of the individual consumer is carried out. However, one entity known as Ejendomskreditselskabet Fairkredit A/S has received an injunction for not sufficiently ensuring that the creditworthiness assessment is based on adequate and documented information about the individual consumer's finances. Danish FSA found that Fairkredit does not sufficiently ensure that the creditworthiness assessment is based on adequate and documented information about the specific borrower's expenses, as the company does not obtain documentation for other budget items such as utility expenses, but primarily uses estimates to document the borrower's stated expenses. Use of estimates from price comparison sites as a basis for calculating the borrower's available amount entails a risk that the calculated available amount does not give a true picture of the individual borrower's financial situation. Thus, Danish FSA has order Fairkredit to rectify these issues and carry out a creditworthiness assessment in accordance with the order on good practice for housing credit §§ 19-20 cf. § 8a, subsection 2, in the Act on property credit companies. The deadline for documenting compliance with the order is January 13, 2023. 

Related Links (in Danish)

• Ceiling for SIFI Designation
• Designated of SIFIs
• List and Indicators for Danish SIFIs (PDF)
• Results of Creditworthiness Assessment

Keywords: Europe, Denmark, Banking, SIFI, Regulatory Capital, Systemic Risk, Credit Risk, Basel, Lending, Loan Origination, Creditworthiness Assessment, Real Estate Lending, Danish FSA