NOTE: On December 14, 2017, the press release was corrected as follows: At the end of the press release, changed the phone number for Journalists listed under Nondas Nicolaides and the releasing office. Revised release follows.
Limassol, July 10, 2017 -- Moody's Investors Service ("Moody's") has today
changed the outlook to negative from stable on the deposit and senior
debt ratings of five regional savings banks Sparebanken Vest, SpareBank
1 SMN, SpareBank 1 Ostlandet, SpareBank 1 Nord-Norge
and Sparebanken Sor. The rating agency has also maintained the
negative outlook assigned to the deposit and debt ratings of DNB Bank
ASA and SpareBank 1 SR-Bank ASA, and the stable outlook assigned
to Kommunalbanken AS's (KBN) senior unsecured debt and issuer rating.
The deposit, senior debt, and issuer ratings of all of the
above banks, where applicable, as well as the subordinated
debt rating of KBN, were affirmed reflecting the broadly unchanged
standalone creditworthiness and liability structures of the banks.
The negative outlooks were triggered by the proposed legislation introduced
to the Norwegian parliament on 21 June 2017 by the Ministry of Finance,
to implement the EU's bank recovery and resolution directive (BRRD)
and the deposit guarantee scheme directive (https://www.regjeringen.no/en/aktuelt/new-rules-on-deposit-guarantee-schemes-and-bank-recovery-and-resolution/id2558196).
If the law proposal is enacted, the rating agency expects that Norwegian
banks will benefit from a lower probability of government support,
which will exert downward pressure on the ratings. Today's
rating action signals Moody's intention to more closely align its
support assumptions for Norwegian banks to those of its European peers
under BRRD resolution framework.
Moody's decision to affirm the ratings and maintain a stable outlook on
state-owned KBN reflects the rating agency's view that it
is likely to maintain its current assessment of very high government support
for this state-owned entity.
Today's rating action covers all Norwegian banks whose ratings currently
benefit from an uplift due to government support assumptions. A
full list of the affected ratings is provided at the end of this press
release.
RATINGS RATIONALE
PROPOSED BRRD LAW TRIGGERS NEGATIVE OUTLOOK FOR FIVE SAVINGS BANKS
On 21 June 2017, the Norwegian Ministry of Finance forwarded to
the parliament proposed draft legislation with a new set of rules to prevent
and manage bank failures, which fully corresponds to the EU's
bank recovery and resolution directive (BRRD). The legislative
proposal entails a new set of rules regarding recovery and resolution
plans, early intervention and resolution tools, including
bail-in powers.
The proposal designates the Financial Authority (FSA) of Norway as the
resolution authority and allows it to impose losses on creditors at the
point of non-viability, through a "bail-in"
of an amount equal to 8% of an entity's total assets.
In accordance with the stricter approach towards government support included
in the newly proposed legislation, which is more closely in line
with the EU's BRRD, Moody's has changed the deposit
and senior debt rating outlook on five Norwegian banks, where applicable,
(Sparebanken Vest, SpareBank 1 SMN, SpareBank 1 Ostlandet,
SpareBank 1 Nord-Norge and Sparebanken Sor) to negative from stable.
These five Norwegian banks' ratings currently incorporate one notch
of rating uplift due to the rating agency's moderate government
support assumption driven by their systemic importance. Moody's
said that its government support assumptions are likely to be revised
lower, once the proposed legislation is passed into law by the parliament.
Accordingly, the negative outlook reflects the future direction
of these banks' deposits and senior debt ratings over the next 12-18
months. The rating agency expects the approval of the new law by
the parliament to take effect after a period of more than three months,
given the current summer closure of the parliament and the upcoming parliamentary
elections in Norway in September.
NEGATIVE OUTLOOK MAINTAINED FOR DNB BANK AND SPAREBANK 1 SR-BANK
The rating agency said that the negative outlook on the deposit and senior
debt ratings of DNB Bank and SpareBank 1 SR-Bank was maintained,
reflecting both existing idiosyncratic asset quality challenges and the
impact of the proposed new BRRD legislation. Currently, Moody's
assumes a high government support assumption for DNB Bank - the
largest bank in Norway - resulting in two notches of rating uplift,
and moderate support for SpareBank 1 SR-Bank, resulting in
one notch of rating uplift, in line with the other five savings
banks mentioned above. The existing negative rating outlook reflects
the downside risks stemming from their oil-related exposure and
the impact on their financial performance from higher loan loss provisions,
although Moody's recognizes that their overall standalone credit
profiles have been relatively resilient so far.
STABLE OUTLOOK MAINTAINED FOR KBN
Moody's has maintained KBN's stable outlook, signaling
the maintenance of its very high government support assumptions for this
state-owned financial institution. The rating agency believes
that despite the upcoming BRRD law implementation, KBN will continue
to benefit from a very high support from the Norwegian government due
to: (1) its state ownership and control; (2) its role as the
government's tool to enact policies related to local governments;
and (3) its public policy mandate to provide low cost financing to the
Norwegian local government sector where its current market share is close
to 50%. Moody's also believes that the government
has the willingness and ability to provide financial support to KBN to
cover any capital shortfall.
RATING AFFIRMATIONS FOR ALL AFFECTED BANKS
The affirmation of the banks' ratings shown at the end of this press
release, is predominantly driven by Moody's view that the standalone
creditworthiness and liability structure of these banks remain broadly
unchanged. Moody's said that it will revise its government
support assumptions, once the proposed legislation is passed into
law by the parliament and in effect the resolution framework is implemented
in Norway.
WHAT COULD CHANGE THE RATING UP/DOWN
DNB BANK
Upward pressure on DNB's debt and deposit rating is unlikely in the near
term given the negative outlook. The outlook could return to stable
if DNB: (1) further reduces its asset vulnerability, especially
in relation to oil-related and offshore exposures as well as to
historically more volatile segments, such as shipping and CRE;
(2) maintains strong and stable earnings generation without increasing
its risk profile; and (3) preserves sustained access to international
capital markets.
Downwards pressure on the ratings could develop if: (1) DNB's financing
conditions become challenging; (2) its asset quality were to deteriorate
beyond our expectations and lead to further increase of the bank's
credit costs; (3) its credit profile substantially deteriorates due
to adverse developments in the Norwegian oil, offshore and real-estate
markets; (4) DNB increases its involvement in more risky operations
such as capital market activities; and/or (5) government support
reduces due to the implementation of a resolution regime in Norway.
REGIONAL SAVINGS BANKS
Upward rating momentum is currently unlikely given the negative outlook
on all six savings banks affected by this rating action. Over time,
upward pressure could develop if these banks demonstrate: (1) reduced
exposure to more volatile sectors such as the oil and commercial real
estate related sectors; (2) diversified access to capital markets
and improved liquidity; and/or (3) stronger earnings generation without
an increase in risk profiles.
Downward rating pressure would develop on these banks ratings if:
(1) Moody's expects their problem loan ratios to increase above its current
system-wide expectation of approximately 2%; (2) profitability
deteriorates further from expected levels; (3) the banks fail to
sustain their market position; and/or (4) government support reduces
due to the implementation of a resolution regime in Norway.
KBN
The likelihood of an upgrade of KBN's BCA is limited because it
is already at the higher end of peers' and banks' BCAs globally.
An upgrade of the BCA will not translate into a higher senior unsecured
rating which is already at Aaa.
Downward pressure on KBN's rating could arise as a result of: (1)
weaker asset quality which is currently unlikely; (2) a dilution
of KBN's public policy mandate; (3) a weaker position in the debt
capital markets; (4) sustained weaker financial performance,
which is currently unlikely; (5) a decrease in the probability of
government support resulting from any amendment to the BRRD or lower willingness
of the government to support; or (6) a downgrade of Norway's
sovereign ratings.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: DNB Bank ASA
.... LT Bank Deposits, Affirmed Aa2
Negative
.... ST Bank Deposits, Affirmed P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aa2 Negative
....Senior Unsecured Regular Bond/Debenture,
Affirmed (P)Aa2
..Issuer: DNB Bank ASA, New York Branch
.... LT Deposit Note/CD Program, Affirmed
Aa2 Negative
..Issuer: Kommunalbanken AS
.... LT Issuer Rating, Affirmed Aaa
Stable
.... Senior Unsecured Regular Bond/Debenture,
Affirmed Aaa Stable
.... Subordinate Regular Bond/Debenture,
Affirmed Aa3
..Issuer: SpareBank 1 Nord-Norge
.... LT Issuer Rating, Affirmed A1 Negative
From Stable
.... LT Bank Deposits, Affirmed A1 Negative
From Stable
.... ST Bank Deposits, Affirmed P-1
.... Senior Unsecured Regular Bond/Debenture,
Affirmed A1 Negative From Stable
..Issuer: SpareBank 1 Ostlandet
.... LT Issuer Rating, Affirmed A1 Negative
From Stable
.... LT Bank Deposits, Affirmed A1 Negative
From Stable
.... ST Bank Deposits, Affirmed P-1
..Issuer: SpareBank 1 SMN
.... LT Issuer Rating, Affirmed A1 Negative
From Stable
.... LT Bank Deposits, Affirmed A1 Negative
From Stable
.... ST Bank Deposits, Affirmed P-1
.... Senior Unsecured Regular Bond/Debenture,
Affirmed A1 Negative From Stable
..Issuer: SpareBank 1 SR-Bank ASA
.... LT Issuer Rating, Affirmed A1 Negative
.... LT Bank Deposits, Affirmed A1 Negative
.... ST Bank Deposits, Affirmed P-1
.... Senior Unsecured Regular Bond/Debenture,
Affirmed A1 Negative
..Issuer: Sparebanken Sor
.... LT Issuer Rating, Affirmed A1 Negative
From Stable
.... LT Bank Deposits, Affirmed A1 Negative
From Stable
.... ST Bank Deposits, Affirmed P-1
..Issuer: Sparebanken Vest
.... LT Bank Deposits, Affirmed A1 Negative
From Stable
.... ST Bank Deposits, Affirmed P-1
.... Senior Unsecured Regular Bond/Debenture,
Affirmed A1 Negative From Stable
Outlook Actions:
..Issuer: DNB Bank ASA
....Outlook, Remains Negative
..Issuer: DNB Bank ASA, New York Branch
....Outlook, Remains Negative
..Issuer: Kommunalbanken AS
....Outlook, Remains Stable
..Issuer: SpareBank 1 Nord-Norge
....Outlook, Changed To Negative From
Stable
..Issuer: SpareBank 1 Ostlandet
....Outlook, Changed To Negative From
Stable
..Issuer: SpareBank 1 SMN
....Outlook, Changed To Negative From
Stable
..Issuer: SpareBank 1 SR-Bank ASA
....Outlook, Remains Negative
..Issuer: Sparebanken Sor
....Outlook, Changed To Negative From
Stable
..Issuer: Sparebanken Vest
....Outlook, Changed To Negative From
Stable
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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the website.
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.
Nondas Nicolaides
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
