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Rating Action:

Moody's affirms DNB Bank's A1/C-/P-1 ratings; subordinated debt upgraded to Baa2

12 May 2014

London, 12 May 2014 -- Moody's Investors Service has today affirmed the ratings of DNB Bank ASA, with a stable outlook. DNB's strong performance in recent years in terms of profitability, lower loan-loss provisions and a stable problem loan ratio has confirmed Moody's view of the bank as a strong European universal bank in a supportive operating environment, with the strength to withstand challenges in the shipping industry, to which the bank has sizable exposure. Specifically, Moody's has affirmed the bank's A1/P-1 long and short-term debt and deposit ratings, C- bank financial strength rating (BFSR), equivalent to a baseline credit assessment (BCA) of baa1, the (P)Baa3 junior subordinated debt and Ba1(hyb) non-cumulative preferred stock ratings. Moody's upgraded DNB's subordinated debt rating to Baa2 (hyb) from Baa3 (hyb).

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

DNB retains its strong position in the Norwegian market, with a 30% market share, and retains considerable ability to influence pricing locally : in 2013, DNB was able to improve lending margins by 0.34 percentage points relative to 2012. Reflecting this, DNB's risk-weighted pre-provision profitability improved to 2.3% in 2013 from 2.0% in 2012, and is now in line with the average for similarly rated global peers. Taking into account reduced provisioning, net profitability reached 1.6%. During 2013, DNB's loan-loss provisions fell by more than 30% compared to 2012, mainly driven by lower provisions within shipping, the Baltics and Poland. We expect overall loan-loss provisions to remain low compared with those of its European peers, reflecting the relatively strong Norwegian macroeconomic environment, although with persistent challenges in the shipping sector.

DNB's exposures to more volatile sectors, including shipping and commercial real estate, remain sizeable. However, while the bank's problem loan ratio has been at historically high levels since 2009, it has been stable (2.25% at year-end 2013), and the bank's latest reported problem loan ratio indicates an improvement (1.9% at end-March 2014). In addition, Moody's positively notes DNB's reduction in exposure to traditional shipping, which has seen more volatile performance, targeting 6% of exposures at default by 2015.

DNB's reliance on market funding is high compared to European peers. This is mitigated by strong capital markets access, domestic as well as international, and use of the covered bond market. Also, DNB benefits from a comfortable liquidity position, underpinned by a lengthened average debt maturity (4.3 years in 2013 vs. 2.4 years in 2008 according to DNB's calculations) and a strong liquidity buffer. DNB's Tier 1 capital ratio, including the transitional floor, was 12% at end-March 2014. In order to build capital buffers organically in recognition of the introduction of Basel III capital requirements, DNB has temporarily reduced its dividend payout ratio to 25%, compared to its long term target of 50%.

SUBORDINATED DEBT RATINGS

The upgrade of DNB's subordinated debt rating to (P)Baa2 from (P)Baa3 reflects Moody's reassessment of the loss absorption profile of this debt class. Specifically, Moody's previously rated Norwegian senior subordinated debt instruments, with the requirement to write down principal if net assets are less than 25% of share capital, one notch wider than similar securities without such triggers in other jurisdictions. However, the rating agency judges the 25% net assets trigger as remote, and will now rate this instrument similar to subordinated debt instruments subject to a statutory bail-in regime, i.e. at one notch below the Adjusted BCA.

WHAT COULD MOVE THE RATINGS UP/DOWN

Some upside pressure on the ratings could arise from a sustained improvement in asset quality metrics and reduced loan book concentrations. In addition, upwards rating momentum could also develop if DNB exhibits sustained strong core earnings without increasing its risk profile.

Conversely, downwards pressure on the ratings could be triggered by an increase in DNB's overall risk profile, including higher risk concentration, geographical expansion, or if credit quality weakens to a greater extent than currently envisaged. In addition, we believe that downward pressure could be exerted on the ratings because of external factors, such as substantially adverse developments in the Norwegian real-estate market.

Changes in the long-term debt and deposit ratings could result from (1) a change in the BFSR; or (2) a change in government support in form of decreased ownership of DNB (which Moody's believes is unlikely in the short to medium term); or (3) a change in Moody's assessment of the degree of government (systemic) support that Norway (Aaa stable) would extend to DNB, if necessary.

LIST OF AFFECTED RATINGS

Issuer: DNB Bank ASA

....Adjusted Baseline Credit Assessment, baa1

:...Baseline Credit Assessment, baa1

....Bank Financial Strength Rating, Affirmed C- STA

....Long-term Deposit Ratings, Affirmed A1 STA

....Short-term Deposit Ratings, Affirmed P-1

....Subordinate Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

....Subordinate Regular Bond/Debenture, Upgraded to Baa2 (hyb) STA from Baa3 (hyb) STA

....Senior Unsecured Medium-Term Note Program, Affirmed (P)A1

....Junior Subordinate Medium-Term Note Program, Affirmed (P)Baa3

....Short-term Medium-Term Note Program, Affirmed (P)P-1

....Pref. Stock Non-cumulative Preferred Stock, Affirmed Ba1 (hyb) STA

....Senior Unsecured Regular Bond/Debenture, Affirmed A1 STA

....Senior Unsecured Regular Bond/Debenture, Affirmed (P)A1

....Senior Unsecured Commercial Paper, Affirmed P-1

Outlook, Stable

Issuer: Den norske Bank ASA

....Subordinate Medium-Term Note Program, Upgraded to (P)Baa2 from (P)Baa3

....Senior Unsecured Medium-Term Note Program, Affirmed (P)A1

....Short-term Medium-Term Note Program, Affirmed (P)P-1

Outlook, Stable

Issuer: Den norske Creditbank

....Junior Subordinated Regular Bond/Debenture, Affirmed Baa3 (hyb) STA (assumed by Den norske Bank ASA)

Outlook, Stable

Issuer: DNB Bank ASA, New York Branch

....Long-term Deposit Rating, Affirmed A1 STA

....Short-term Deposit Rating, Affirmed P-1

....Senior Unsecured Deposit Note/Takedown, Affirmed P-1

Outlook, Stable

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

DNB Bank, headquartered in Oslo, Norway, reported total assets of NOK2,207 billion (EUR267 billion) at end-March 2014.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Oscar Heemskerk
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Simon Harris
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms DNB Bank's A1/C-/P-1 ratings; subordinated debt upgraded to Baa2
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