Deficiencies in banks’ loan origination and monitoring practices

In 2025, the Financial Supervisory Authority (FIN-FSA) examined the loan origination and monitoring practices of the credit institutions subject to its direct supervision, particularly compliance with the EBA Guidelines (EBA/GL/2020/06). The purpose of the thematic review was to assess compliance with the EBA Guidelines (EBA/GL/2020/06) in credit institutions’ internal governance for credit granting and monitoring, credit-granting processes and the monitoring framework.

The FIN-FSA identified in the thematic review the following deficiencies. The observations are based on information submitted by the banks.

• The FIN-FSA identified deficiencies in the diversification of credit risk and the setting of limits. The most significant deficiencies related to the lack of diversification objectives and limits in relation to business lines, geographies, economic sectors and products, and the lack of quantitative internal credit risk limits for the purpose of managing concentration risk. Deficiencies were also observed in the specification of the scope and focus of the banks’ credit risk, as well as in specification of the composition of the credit portfolio, including its concentration.
• Banks have not specified a regular credit review process as laid out in the EBA Guidelines. Deficiencies were also identified in the frequency of the reviews of borrowers whose credit and asset quality has deteriorated. Deficiencies were also observed in the comprehensiveness of data and information assessed in regular credit reviews.
• The FIN-FSA identified deficiencies in the application of international valuation standards in the valuation of collateral for commercial real estate lending. Deficiencies were also observed in the way banks took into account the information related to commercial real estate lending as laid down in the EBA Guidelines, as part of the assessment of the borrowers’ repayment capacity. The FIN-FSA also identified deficiencies in the sensitivity analyses carried out by banks as part of the credit review of borrowers in relation to commercial real estate lending.
• The FIN-FSA observed deficiencies in the comprehensiveness of the data in the monitoring framework of banks. The FIN-FSA also observed that the compilation of data for banks’ monitoring framework requires a considerable amount of manual processes.
• In connection with banks’ lending practices, the FIN-FSA identified deficiencies in credit decisions’ maximum period of validity as well as in the comprehensiveness and up-to-datedness of the information compiled in the creditworthiness assessment process for business lending. Deficiencies were also identified in the carrying out of sensitivity analyses as part of the creditworthiness assessment for business lending.
• In lending for real estate development, the FIN-FSA identified shortcomings in the way banks carried out on-site visits and included contingencies in the assessment of the borrower’s repayment capacity. In addition, the FIN-FSA recommends that banks assess the using of the additional information and data listed in Annex 2, subsection D of the EBA Guidelines EBA/GL/2020/06 in lending for real estate development, such as information on any ongoing project being developed by the borrower and evidence of planning and building permits.

The FIN-FSA’s measures

The observations will be used as basis for the targeting of supervision. The FSA requires that the supervised entities remediate the deficiencies observed in the assessments. In corrective measures for observations 2) – 6), proportionality should be taken into account in accordance with the EBA guidelines (EBA/GL/2020/06). The FIN-FSA will send bank-specific supervision letters.

For further information, please contact

• Torsten Groschup, Chief Specialist, telephone +358 9 183 5333 or torsten.groschup(at)fiva.fi
• Suvi Muinonen, Senior Inspector, telephone +358 9 183 5282 or suvi.muinonen(at)fiva.fi