Føroya Banki faces scrutiny from Financial Supervisory Authority over risk management in the Faroe Islands

Føroya Banki has not clearly established its targets regarding growth, lending, and core capital, increasing the risk of the bank taking on unwanted risks.

The bank received feedback from the Financial Supervisory Authority during a recent visit at the end of May.

According to the authority, Føroya Banki has significantly more funds in fixed assets than other banks of similar size. This puts the bank at a higher risk if the fixed investment market experiences downturns.

Due to numerous changes in the bank’s board over the past year, an assessment has been recommended to ensure sufficient expertise for credit evaluation.

The Financial Supervisory Authority also pointed out that the rules governing exceptions and deviations from the bank’s main credit policy are often unclear, resulting in staff having excessive decision-making powers.

The authority reviewed 90 exposures, accounting for 21% of the bank’s total lending.

Additionally, three clients were valued lower than the bank had estimated, increasing the need for write-offs by one million.

Føroya Banki has been informed that its risk management should also include its subsidiaries.

The Financial Supervisory Authority has set the bank’s solvency requirement to 10.5%, which is 0.2 percentage points higher than the current level. The full report is available for further reading.