July 12, 2013 / 1:36 PM / 6 years ago

UPDATE 1-Danske Bank appeals FSA demands to toughen risk calculations

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COPENHAGEN, July 12 (Reuters) - Denmark’s biggest financial institution Danske Bank said on Friday it was appealing an order from the country’s financial watchdog to use tougher measures to calculate risk in its corporate loan book.

Nordic banks have some of the highest levels of capital in Europe due to tough regulations, but there has been increasing concern over how they calculate capital and their relatively low risk weights compared to their European rivals.

Denmark’s Financial Supervisory Authority (FSA) told Danske Bank last month to get its corporate risk weights up, to bring them more in line with regional peers.

Danske Bank took issue with the decision, saying on Friday it would raise the matter with the Company Appeals Board.

“This is an important matter of principle for Danske Bank, and we believe that it is proper to submit the decision to another body,” the bank said in a statement. “We have therefore decided to appeal against the decision.”

Assigning a lower risk weight to loans means banks have a lower number for risk weighted assets. Since capital ratios are calculated as capital divided by risk weighted assets, lower risk weights lead to better capital ratios - the benchmark number for their financial health.

The head of the Danish FSA told Reuters earlier this week that he was confident it had the legal right to insist on higher risk weights, despite the fact that it had approved the bank’s models in 2008.

Analysts had largely expected Danske, whose clients have suffered from a burst property bubble and a struggling agriculture sector, to comply with the demand to raise its weights to 46 percent from 36 percent.

The FSA decision had caused a 6 percent drop in the share price on the day as it left the bank unlikely to be able to pay a dividend this year.

Danske Bank said on Friday it would not appeal against the order to set aside additional capital in its solvency need calculations with effect from 30 June 2013 to cover risks deriving from exposures to other institutions. (Reporting by Mette Fraende and Mia Shanley in Stockholm, editing by Alistair Scrutton)

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