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Rating Action:

Moody's affirms SpareBank 1 Ostlandet's ratings, outlook remains stable

12 Jan 2022

London, 12 January 2022 -- Moody's Investors Service ("Moody's") today affirmed SpareBank 1 Ostlandet's Baseline Credit Assessment (BCA) and Adjusted BCA of a3, its long-term deposit ratings, issuer ratings and senior unsecured ratings of Aa3, senior unsecured MTN program rating of (P)Aa3, subordinate MTN program rating of (P)Baa1, long-term Counterparty Risk Assessment (CRA) of Aa3(cr) and long-term Counterparty Risk Rating (CRR) of Aa3. The rating agency also confirmed the bank's Junior Senior ratings of A3, previously placed on review for upgrade. The outlook on the deposits and senior unsecured ratings remains stable.

A full list of affected ratings is at the end of this press release.

RATINGS RATIONALE

BASELINE CREDIT ASSESSMENT

The affirmation of the bank's a3 BCA reflects the bank's resilient performance throughout the pandemic as demonstrated by its sound asset quality, strong capitalization and robust profitability. The bank's problem ratio remained at very low levels at 0.4% of gross loans (including loans transferred to covered bond companies) at end September 2021 from 0.3% at end 2020, which is reflective of the bank's low credit risk retail mortgage portfolio. SpareBank 1 Ostlandet also benefits from solid capital levels, with a tangible common equity to risk weighted assets of 19.9% at end September 2021. Profitability also remained resilient through the pandemic with a return to tangible banking assets of 0.83% in 2020, and improving to almost 1% in the first nine months of 2021.

These strengths are balanced against the bank's relatively high level of capital markets funding and some credit concentrations towards the commercial real-estate sector.

LOSS GIVEN FAILURE

Moody's forward-looking Advanced Loss Given Failure (LGF) analysis of SpareBank 1 Ostlandet's liability structure indicates that depositors and senior unsecured creditors are likely to face extremely low losses given failure resulting in three notches of uplift to the ratings from the BCA. This reflects our expectation that SpareBank 1 Ostlandet will be required to issue large volumes of instruments, prior to the end of 2023, that are subordinated to depositors and senior creditors in order to comply with their minimum requirements for own funds and eligible liabilities (MREL).

The analysis takes into account the Norwegian Financial Supervisory Authority's (FSA)'s revised approach to calculating MREL subordination requirements, following the expected implementation of the amended Bank Recovery and Resolution Directive (BRRD2) into Norwegian law; as well as the bank's need to hold buffers above the minimum requirements.

The confirmation of the bank's junior senior ratings reflects that according to Moody's Advanced LGF analysis for junior senior debt holders are likely to face moderate losses given failure resulting in a rating of A3 in-line with the bank's BCA. This reflects the agency's view that under the new MREL subordination requirements it is less likely that the bank will issue a sufficiently large buffer above the minimum requirement to materially reduce expected loss rates.

OUTLOOK

The bank's deposit and debt ratings carry a stable outlook balancing its robust financial performance with downside risks stemming from its dependence on market funding and real-estate and home prices, especially in the Oslo region. The outlook also reflects Moody's expectation that the bank will issue sufficient volumes of junior senior debt to support the senior unsecured rating, despite lower mandatory subordination requirements.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward rating pressure could develop if SpareBank 1 Ostlandet demonstrates; comfortable liquidity and lower use of market funds combined with solid capitalisation on an on-going basis; stronger earnings generation without an increase in its risk profile combined with an improved cost-to-income ratio.

The bank's ratings could be downgraded if: SpareBank 1 Ostlandet's problem loan ratio and impairments increase significantly above its similarly-rated peers; financing conditions become more difficult, impairing its ability to raise low-cost market funding; its risk profile increases, as a result of increased exposures to more volatile sectors; the macroeconomic environment deteriorates, leading to adverse developments in the Norwegian real-estate market and a deterioration in asset quality or a lower Macro Profile.

Furthermore, the senior unsecured debt ratings could be downgraded should the bank issue materially lower volumes of junior-senior instruments.

LIST OF AFFECTED RATINGS

..Issuer: SpareBank 1 Ostlandet

Confirmation:

....Junior Senior Unsecured Regular Bond/Debenture, Confirmed at A3

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed a3

....Baseline Credit Assessment, Affirmed a3

....Long-term Counterparty Risk Assessment, Affirmed Aa3(cr)

....Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

....Long-term Counterparty Risk Ratings, Affirmed Aa3

....Short-term Counterparty Risk Ratings, Affirmed P-1

....Long-term Issuer Ratings, Affirmed Aa3, Outlook Remains Stable

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Aa3

....Subordinate Medium-Term Note Program, Affirmed (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Affirmed Aa3, Outlook Remains Stable

....Long-term Bank Deposit Ratings, Affirmed Aa3, Outlook Remains Stable

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

Outlook Action:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Effie Tsotsani
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Simon Ainsworth
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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