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The bank used a method to underestimate the credit risk on the loan portfolio.
The European Central Bank has fined Credit Mutual Group 3.54 million euros for using a methodology that underestimated credit risk on a loan portfolio, it announced on Thursday. The amount results from two restrictions related to the use of the bank’s internal model, the ECB indicated in a press release.
“Between May 2021 and April 2022, when using its internal model to determine its risk-weighted assets, the bank did not apply the framework set by the ECB to calculate the credit risk of certain exposures”Adds the financial institution, explaining that this prevents it from having “Overview of Bank’s Risk Profile”.
Underestimating risk-weighted assets means that the bank has reduced the key ratio (“Common Equity Tier 1”) higher than it should be. This ratio is an important indicator of a bank’s capital strength and its ability to absorb losses.
The ECB, the sole supervisor of about 115 of the biggest banks in the euro zone, has already imposed about twenty sanctions against private institutions. Banks can challenge the ECB’s decision before the Court of Justice of the European Union.
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