We have a duty to our customers to lend responsibly. This is also sound banking practice. In deciding whether to grant credit, we follow a rigorous decision-making process designed to ensure the customer’s ability to repay the loan.
Since customer relationships are based on mutual trust, we must be convinced of the integrity, ability and financial capacity of our customers to meet their obligations. Of course, things don’t always turn out as expected and unforeseen situations can arise. If a customer runs into difficulties, we work with them to decide how to cope.
How we make credit decisions
Our credit decision-making is guided by two policies:
The Credit Policy and Strategy establishes overall principles, such as always applying sound banking practice and high ethical standards. It also states that we should never compromise generally accepted ethical and legal principles, nor have dealings with people we suspect to be of questionable morality.
Our Credit Instructions describe our credit decision-making organisation and authority, including limits and powers to act.
We also have industry-specific guidelines (called credit industry policies and principles) for these areas:
- Commercial Real Estate
- Financial Institutions
- Shipping, Offshore and Oil Services
- Leveraged buy-out (LBO)
Credit risk governance and decision making
ESG risk assessment
The relationship with our private, corporate and institutional customers is based on a thorough knowledge of their business activities. As well as complying with the credit industry policies and principles, we have developed our own tools and processes to bring a more holistic approach to our lending decisions, one that is informed by considering environmental, social and governance (ESG) issues.
These are the three main areas of concern when evaluating the sustainability or ethical credentials of a company. ESG risk assessment, therefore, looks at issues, such as the company’s carbon footprint, and whether there are systems in place to mitigate the risks those issues pose.
We currently have two tools to assess ESG risks in lending: the Environmental Risk Assessment tool (ERAT) and the Social and Political Risk Assessment tool (SPRAT). We use the tools in parallel, but the approach taken depends on whether we are assessing a retail banking or wholesale banking customer.
In 2015 we will introduce a new ESG analysis tool and integrate ESG risk assessment more fully into our overall credit decision-making process.
An overview of sustainability in the credit process
The Swedish Financial Supervisory Authority (Finansinspektionen) presented a report in November 2015 on banking and sustainability. In the report they concluded that banks should be more transparent towards consumers with regards to how sustainability is considered in the credit process and that this should primarily be through an initiative within the banking industry.
The sustainability overview document below is a banking sector initiative facilitated by the Swedish Bankers' Association in order to give an insight into how banks take sustainability into account and how it is integrated in the process of lending to corporates. The board of the Swedish Bankers’ Association has approved the document as an industry recommendation.
Sustainable Financing unit
We have recently established a Sustainable Financing unit with experienced senior employees to give more focus to environmental, social and governance assessment. The unit, which functions as a knowledge centre, aims to increase awareness and capabilities in assessing ESG risks in business selection and product development, as well as forward-looking risk identification and mitigation.
The Equator Principles
Nordea was the first Nordic bank to adopt the Equator Principles (a set of voluntary environmental and social guidelines for financing projects), signing up to them in 2007. However, we do not actively engage in project finance, playing a role only in transactions that have a strong connection to our prime customers.
Read more about Equator Principles in the following Analyst Q&A questions: 'How does Nordea ensure compliance with agreed commitments?' and 'How does Nordea ensure responsible lending within project finance?'.