The European Banking Authority (EBA) has assessed Norwegian capital instruments
News
Published: 19 December 2022
Finanstilsynet has today sent a letter to the Ministry of Finance regarding EBA's assessment of Norwegian shares, equity certificates and members’ contributions in credit associations.
Pursuant to the Capital Requirements Regulation (CRR), the EBA shall assess whether CET1 instruments meet the requirements of the CRR. The assessment of the Norwegian instruments has now been completed, and EBA has published an updated overview of eligible instruments, which includes Norwegian shares, equity certificates and members’ contributions. Prior to the publication, EBA informed Finanstilsynet that amendments to the legislation governing Norwegian instruments are necessary in order for them to meet the requirements of the Capital Requirements Regulation (CRR). The inclusion of the Norwegian instruments on the list of eligible instruments is conditional on the Norwegian authorities following up EBA's assessment.
Shares
According to EBA, the provisions of the Norwegian Limited Companies Acts which permit the District Court, at the request of shareholders, to stipulate higher dividends than determined by the general meeting, are not in conformity with CRR.
Equity certificates
EBA points out that the capital structure of savings banks with equity certificates is complex, and that complex structures increase the risk of non-compliance with the requirements. EBA also refers to the rules on loss-absorbing capacity in CRR and emphasises the importance of maintaining a dividend equalisation fund of adequate size.
EBA also points out that the Norwegian legislation concerning equity certificates does not require that any reduction of equity is subject to the competent authority’s prior approval, as required by CRR.
Members’ contributions in loan associations
In its report on the monitoring of CET1 instruments published in December 2021, EBA has considered the general characteristics of members’ contributions in loan associations. In Norway, only one credit institution, Kredittforeningen for Sparebanker, has members’ contributions.
In EBA’s opinion, members’ contributions in Kredittforeningen for Sparebanker do not meet all requirements of the CRR. Furthermore, the association's articles of association governing members’ contributions are not considered to be in conformity with the provisions of the CRR requiring the instruments to be perpetual.
Finanstilsynet has informed EBA of how the assessments can be followed up and will shortly propose certain amendments to the Financial Institutions Act. In Finanstilsynet's view, amendments that are necessary to ensure that the loss-absorbing capacity of the equity certificates meets the requirements of the Capital Requirements Regulation will require a more extensive review. Finanstilsynet requests the Ministry of Finance to initiate such a review in early 2023. Finanstilsynet will follow up Kredittforeningen for Sparebanker with respect to measures to be undertaken on the basis of EBA's assessment.
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