Denmark Urges Banks to Ignore SME Capital Provision

July 15
1:39 PM 2013

The European Parliament, in an attempt to align with the Basel Committee on Banking Supervision's regulation, passed a directive that will simplify the risk calculation for small- and medium-sized business loans. The directive specified on the SME capital provision to cut the charges for exposures to 0.7619 or 7.619% to be multiplied to risk weights.  For the European Commision, easing up on the business loans for SMEs will boost Europe's economic slump because the industry provide 85% of jobs created in the region.

Denmark, on the other hand, opted to not follow the ruling and advised the nation's lenders to disregard the prescriptive risk factor of 0.7619. The central bank of Denmark believed that this would degrade the country's financial system.  Denmark is still in the process of recovering from a lending surplus that took a dozen banks and forced others to merge. Last year alone, the loan loss deficiencies reached 11%. Up until now, Danish banks have an unequal share of weak loans. 

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