The European Central Bank (ECB) has imposed an administrative penalty of €10.4 million ($10.8mn) on BNP Paribas Fortis SA/NV for reporting miscalculated risk-weighted assets for credit risk, in a breach the ECB has classified as “severe”.
Between 2014 and 2021, for 31 consecutive quarters, BNP Paribas Fortis SA/NV understated its risk-weighted assets connected to factoring exposures of its subsidiary in Belgium. The bank relied on the use of internal models for calculating own funds requirements for these exposures, despite having identified severe deficiencies which rendered the models almost inevitably non-compliant with the Capital Requirements Regulation (CRR).
The bank knowingly reported wrongly calculated figures to the competent authorities, thereby preventing them from having a comprehensive view of its risk profile. The bank only informed the ECB once the new models had been developed and submitted for regulatory approval, seven years after the deficiencies were identified.
As a result of underestimating its risk-weighted assets, BNP Paribas Fortis SA/NV did not calculate its capital requirements properly and reported higher capital ratios than it should have. Capital ratios are key indicators of a bank’s capital strength and its ability to absorb losses.