Nordea gets consent for use of existing internal models

Nordea Bank Abp (“Nordea”) reached another milestone in the transition from the Swedish FSA (“SFSA”) regulatory framework to the banking union regulatory framework by being granted temporary use of internal models, as part of the planned re-domiciliation to Finland.

European Central Bank (“ECB”) has given the decision for the use of internal models for calculation of risk exposure amounts (“REA”) from, as expected, implies a migration of Pillar 2 capital add-ons into Pillar 1 REA and an unchanged nominal capitalisation level, said a press release.

As previously communicated, Nordea has voluntarily committed to comply with the SFSA 2018 Supervisory College Joint Decision as of 1 October 2018 until the ECB has issued a decision establishing prudential requirements prepared in accordance with the 2019 Supervisory Review and Evaluation Process (“SREP”) expected late 2019.

During this transition, the ECB decision, including the already announced implementation of the Swedish residential real estate risk-weight floor, reduces the forecasted Common Equity Tier 1 (“CET1”) ratio for the fourth quarter of 2018 to approximately 15.5 per cent and similarly reduces the associated transitional CET1 capital requirement[1] to approximately 13.7 per cent (of which 3 per cent relates to Pillar 2)[2]. Thus, the management buffer in nominal terms is expected to remain largely unchanged. Nordea expects to communicate the final capital requirements after 1 October 2018 following the SFSA 2018 Joint Capital Decision.

As part of the decision for temporary use of internal models, Nordea has committed to a model improvement development plan with applications expected no later than 2020.