Supervision release 25 April 2022 – 25/2022

Banks under FIN-FSA's direct supervision have shortcomings in identification and management of doubtful receivables and in methods and processes for measurement of expected credit losses

In winter 2021/2022, the Financial Supervisory Authority (FIN-FSA) conducted a thematic review to banks under its direct supervision concerning the identification and management of doubtful loans granted to micro enterprises and SMEs. In addition, the thematic review looked into methods and processes applied to the determination of significant increase in credit risk and expected credit losses. These were found not to be compliant with regulation in all aspects. 

Shortcomings were identified in the following subjects:

  • identification of forbearance agreements, setting of interim targets and monitoring the effectiveness of forbearances
  • length of grace periods involving a forbearance
  • more frequent monitoring of immovable property collateral where the borrower has a sub-standard credit rating
  • monitoring of covenants and execution of consequent actions
  • individual valuation of immovable property collateral for non-performing loans
  • definition of quantitative indicators for significant increase in credit risk (SICR), as well as the validation and monitoring of their performance
  • consideration of expected forbearance as a SICR indicator
  • compliance with minimum probation periods in transfers between impairment stages, and assessment of the adequacy of the probation periods
  • processes for consideration and decision-making concerning the parameters and scenarios for the calculation of expected credit losses (ECL), adjustments made directly in the ECL amount and validation of ECL calculation.

The FIN-FSA requires entities under its supervision to remediate any identified shortcomings and will follow up on progress with these measures in the context of ongoing supervision and inspections.

For further information, please contact

  • Torsten Groschup, Senior Risk Expert, telephone +358 9 183 5333 or torsten.groschup(at)
  • Jaana Ladvelin, Senior Capital Adequacy Advisor, telephone +358 9 183 5313 or jaana.ladvelin(at)