Føroya Banki: Systemic risk buffer to be lifted by 1pp - Nordea

The Danish Systemic Risk Council recommends that the Faroe systemic risk buffer is hiked to 3% (currently 2%) from 1 July 2025. Prior to the COVID pandemic this was on the table as well. Due to the pandemic, it was however reduced to 2% shortly after the implementation. In December 2021, the Systemic Risk Council recommended to implement a countercyclical buffer at 1% instead of raising the systemic risk buffer by 1pp. Now the Systemic Risk Council has changed its stance once again and opt for both. Adding 1pp to the CET1 requirement of Føroya Banki, reduces the capital distribution potential by DKK ~80m on our estimates, which corresponds to ~5% of its market cap. We are also still waiting for the outcome of the ongoing investigation by the Danish FSA regarding the Faroese and Greenlandic property markets, which has posed a temporary hiccup in Føroya Banki's capital optimisation journey. We expect to see the outcome of this during Q3 2024.

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