* Approval allows bank to use lower risk weighting to calculate capital
* Adds 0.7 percentage points to Nordea's Q3 core Tier 1 ratio
* Higher capital level creates room for bigger dividends (Adds background, shares)
STOCKHOLM, Jan 15 Nordea Bank won approval on Wednesday from Sweden's financial watchdog to use more relaxed risk models for its corporate loan book, giving the bank more room to hand back cash to shareholders.
Nordic banks are already some of the most well-capitalised lenders in Europe and are expected to hand out handsome dividends when they report full-year earnings in the weeks ahead. Nordea will announce its results on January 29.
The approval for Nordea by Sweden's Financial Supervisory Authority (FSA) was delayed from last year as global financial authorities grappled with how banks assessed their own risk. It allows the bank to use a lower risk weighting when calculating its capital buffers on corporate loans.
Nordea shares were up 2.78 percent after the news, beating a 1 percent rise in both the broader Stockholm bourse and the European banking index.
CEO Christian Clausen told Reuters in November he expected the bank could pay higher dividends in the coming years despite expectations for tougher capital rules such as countercyclical buffers and tougher risk weightings on mortgages.
Nordea, the Nordic region's biggest bank by market value, had a core Tier 1 capital ratio of 14.4 percent at the end of the third quarter. It said Wednesday's approval translated into a 0.7 percentage point boost to the ratio - a key measurement of a bank's financial health.
At 15.1 percent, Nordea's ratio would be comfortably above Sweden's requirement for banks to have a Tier 1 ratio of 10 percent. That requirement will rise to 12 percent in 2015. (Reporting by Mia Shanley; Editing by Matthias Williams)