Outlook change triggered by upcoming MREL requirements
Limassol, June 03, 2019 -- Moody's Investors Service ("Moody's") has today changed the outlook to
stable from negative on the long-term deposit and senior unsecured
debt ratings of seven Norwegian banks: DNB Bank ASA (DNB),
SpareBank 1 SR-Bank ASA, Sparebanken Vest, SpareBank
1 SMN, SpareBank 1 Ostlandet, SpareBank 1 Nord-Norge
and Sparebanken Sor. The outlook on the long-term issuer
rating of SpareBank 1 Boligkreditt AS, the covered bond company
of the SpareBank 1 Alliance banks, was also changed to stable from
negative. The deposit, senior debt, issuer and subordinated
debt ratings, where applicable, of the above banks were affirmed.
Concurrently, the long-term counterparty risk assessment
(CR Assessment) and counterparty risk ratings (CRR) for DNB Bank ASA were
downgraded to Aa2(cr) from Aa1(cr) and to Aa2 from Aa1 respectively,
and for the other six savings banks to A1(cr) from Aa3(cr) and to A1 from
Aa3 respectively. SpareBank 1 Boligkreditt AS's long-term
CR Assessment and CRRs were also downgraded to A2(cr) from A1(cr) and
to A2 from A1 respectively. The baseline credit assessments (BCA)
of these banks remain unaffected.
Today's rating actions incorporate Moody's forward-looking Loss
Given Failure (LGF) analysis and the rating agency's expectations that
the banks will issue additional loss-absorbing instruments,
mainly in the form of non-preferred senior (NPS) debt, referred
to as "junior senior" unsecured notes by Moody's, in response to
the framework for minimum requirements for own funds and eligible liabilities
(MREL) that has been set by the Norwegian Financial Supervisory Authority
(FSA). Future issuance of additional loss-absorbing debt
will potentially reduce loss severity for junior depositors and senior
unsecured creditors according to Moody's Advanced LGF analysis.
In addition, the rating actions also take into consideration the
implementation of the relevant law that transposed EU's bank recovery
and resolution directive (BRRD) and the deposit guarantee scheme directive
in Norway from 1 January 2019. The rating agency said that Norwegian
banks now benefit from a lower probability of government support,
although the resulting downward pressure on the deposit and senior debt
ratings is counterbalanced by the aforementioned lower loss severity from
Moody's forward-looking LGF analysis. Moody's said that
today's rating actions more closely align its support assumptions for
Norwegian banks to those of its European Union peers.
The downgrade of the above banks' CR Assessments and CRRs,
however, reflects the rating agency's assumption of lower
level of government support, combined with no additional benefit
provided to this debt class from the higher loss-absorbing cushion
that banks will obtain going forward through their junior senior notes.
Today's rating actions cover all Norwegian banks whose ratings currently
benefit from an uplift due to government support. The Norwegian
FSA has also announced that all the impacted banks will be given an MREL
requirement during 2019, which would facilitate a full recapitalization.
A full list of the affected ratings is provided at the end of this press
release.
RATINGS RATIONALE
MREL AND LOWER GOVERNMENT SUPPORT ASSUMPTIONS DRIVE STABLE OUTLOOK ON
DEBT AND DEPOSIT RATINGS
Banks' long-term deposit and senior unsecured debt rating
outlook change to stable from negative reflects Moody's expectation that
the reduced loss severity for senior creditors, due to the upcoming
issuance of additional loss-absorbing debt, will offset the
downward rating pressure from lower government support. Banks will
need to issue additional loss-absorbing instruments, predominantly
in the form of non-preferred senior (or junior senior) debt,
as a response to the Norwegian FSA's forthcoming bank-specific
MREL.
A non-preferred senior debt class has been introduced in Norway
allowing banks to meet their MREL recapitalization requirements.
This new debt class is senior to subordinated debt and regulatory capital
instruments, and junior to other ordinary senior unsecured claims.
Such instruments facilitate loss-absorption via a conversion to
equity or write-down in resolution, before senior creditors
are affected. Moody's expects the Norwegian FSA to formally communicate
to the seven banks above their MREL later this year. Moody's attaches
a high degree of confidence to the likelihood that these banks will fulfil
MREL along with the subordination required over the next 2-3 years,
and therefore applies a forward looking time-horizon in its advanced
LGF analysis.
The rating agency's estimated NPS debt requirements, based
on the MREL formula published by the Norwegian FSA and the banks'
existing capital levels, which were used in its forward-looking
LGF analysis are as follows:
-- DNB BANK ASA, approximately NOK150 billion
-- SPAREBANK 1 SR-BANK ASA, approximately NOK20
billion
-- SPAREBANK 1 SMN, approximately NOK14 billion
-- SPAREBANKEN VEST, approximately NOK12 billion
-- SPAREBANKEN SOR, approximately NOK10 billion
-- SPAREBANK 1 OSTLANDET, approximately NOK10 billion
-- SPAREBANK 1 NORD-NORGE, approximately NOK9
billion
The previously negative rating outlook has been in place for the majority
of the above-mentioned banks since July 2017, and was driven
by the anticipated new legislation in Norway with a set of rules to prevent
and manage bank failures, in line with the EU's BRRD. The
law entails a new set of rules regarding recovery and resolution plans,
early intervention and resolution tools, including bail-in
powers of an amount equal to 8% of an entity's total assets.
In accordance with the legislation's stricter constraints on the
circumstances under which government support may be provided, Moody's
has revised its government support assumptions for these large banks.
For DNB Bank ASA, the largest bank in Norway with a national market
share of around 30%, the rating agency changed its government
support assumption to moderate from high, which is consistent with
the assumptions used for other significantly large and systemically important
banks in the EU. For the other six smaller savings banks,
which have a dominant regional presence but with less than 5% national
market share each, Moody's changed its government support
assumptions to low from moderate.
Accordingly, the rating uplift previously incorporated into these
banks' senior unsecured debt and deposit ratings was reduced to
one notch from two notches for DNB Bank, and to zero from one notch
for the other six savings banks. Nonetheless, Moody's said
that there was no net impact on these banks' deposit and senior
debt ratings, due to the additional one notch rating uplift from
Moody's revised forward looking LGF analysis that now incorporates
the additional loss-absorbing NPS debt instruments, which
the banks are expected to issue. These two counterbalancing rating
drivers underpin the seven banks' stable senior unsecured debt and
long-term deposit rating outlooks. In addition, the
stable outlook also takes into account the solid underlying financial
performance of these banks, combined with their strong credit profiles
without any immediate material downward pressure.
DOWNGRADE OF BANKS' COUNTERPART RISK ASSESSMENT (CR ASSESSMENT)
AND COUNTERPARTY RISK RATING (CRR)
The downgrade of the seven banks' long-term CR Assessments
and CRRs, is mainly driven by the reduction of Moody's government
support assumptions, combined with the unchanged rating uplift that
these bank obligations benefit from the advanced LGF analysis.
The rating agency notes that these banks' CR Assessments and CRRs
already incorporate the maximum allowable of three notches above their
BCAs under the Moody's advanced LGF analysis, and that this
positioning remains unchanged even with the potential issuance of the
new loss-absorbing NPS debt instruments. Accordingly,
the removal of the one notch rating uplift previously incorporated in
the CR Assessments and the CRRs due to the rating agency's revised
government support assumptions, has also triggered their rating
downgrade.
STABLE OUTLOOK FOR SPAREBANK 1 BOLIGKREDITT AS's ISSUER RATING OF
A2, AND DOWNGRADE OF THE CR ASSESSMENT AND CRRs
SpareBank 1 Boligkreditt AS is the jointly-owned covered bond company
of the SpareBank 1 Alliance banks (SpareBank 1 SR-Bank ASA,
SpareBank 1 SMN, SpareBank 1 Ostlandet and SpareBank 1 Nord-Norge
are the four largest banks of the Alliance), and its issuer rating
and outlook are derived from the owner banks' ratings. Accordingly,
the company's outlook is changed to stable from negative,
in line with the owner banks' rating outlook, while its long-term
CR Assessment and CRRs are downgraded by one notch to A2(cr) from A1(cr)
and to A2 from A1 respectively to reflect the revised CR Assessments and
CRRs of the owner banks.
According to the rating agency's methodology, such special
covered bond issuers are rated based on the weighted-average credit
profile of the individual owner-banks forming the SpareBank 1 Alliance,
as well as the agency's assessment of the likelihood that these banks
will support SpareBank 1 Boligkreditt AS in case of need.
WHAT COULD CHANGE THE RATINGS UP/DOWN
DNB BANK ASA
DNB's debt and deposit ratings could be upgraded as a result of an upgrade
in its standalone BCA. The bank's BCA could be upgraded if
it: (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.
DNB's debt and deposit ratings could be downgraded as a result of (i)
a downgrade in its standalone BCA; or (ii) gradual replacement of
maturing senior debt with non-preferred senior debt being significantly
below Moody's expectation. Downwards pressure on the bank's
BCA 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.
REGIONAL SAVINGS BANKS
Upward pressure could develop if these banks demonstrate: (1) reduced
credit risk stemming from more volatile sectors such as the oil and commercial
real estate related sectors; (2) diversified access to capital markets,
robust deposit growth and improved liquidity; and/or (3) stronger
earnings generation without any material increase in risk profiles.
Downward rating pressure would develop on these banks' ratings if:
(1) problem loan ratios increase above 2%; (2) profitability
deteriorates or margin pressure develops significantly; (3) they
fail to sustain their market position and core earnings generation;
and/or (3) the actual cushion of their loss-absorbing debt instruments
that qualify for MREL is less than anticipated by the rating agency.
FULL LIST OF AFFECTED RATINGS
Issuer: Sparebanken Sor
..Downgrades:
.... Long-term Counterparty Risk Assessment,
Downgraded to A1(cr) from Aa3(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to A1 from Aa3
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Long-term Issuer Rating,
Affirmed A1, Outlook Changed To Stable From Negative
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Outlook Changed To Stable From Negative
....Long-term Bank Deposits,
Affirmed A1, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: Sparebanken Vest
..Downgrades:
.... Long-term Counterparty Risk Assessment,
Downgraded to A1(cr) from Aa3(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to A1 from Aa3
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
....Junior Subordinate Medium-Term
Note Program, Affirmed (P)Baa3
....Subordinate Medium-Term Note Program,
Affirmed (P)Baa2
....Other Short-term, Affirmed
(P)P-1
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Outlook Changed To Stable From Negative
....Long-term Bank Deposits,
Affirmed A1, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: DNB Bank ASA
..Downgrades:
.... Long-term Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to Aa2 from Aa1
..Affirmations:
....Commercial Paper, Affirmed P-1
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
....Subordinate Medium-Term Note Program,
Affirmed (P)Baa1
....Other Short-term, Affirmed
(P)P-1
....Pref. Stock Non-cumulative
Preferred Stock, Affirmed Baa3 (hyb)
....Senior Unsecured Regular Bond/Debenture,
Affirmed Aa2, Outlook Changed To Stable From Negative
.... Senior Unsecured Regular Bond/Debenture,
Affirmed (P)Aa2
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Aa2
....Subordinate Regular Bond/Debenture,
Affirmed Baa1 (hyb)
....Long-term Bank Deposits,
Affirmed Aa2, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: DNB Bank ASA, New York Branch
..Affirmations:
.... Long-term Deposit Note/CD Program,
Affirmed Aa2, Outlook Changed To Stable From Negative
....Other Short-term , Affirmed
P-1
....Long-term Bank Deposits,
Affirmed Aa2, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: SpareBank 1 Boligkreditt AS
..Downgrades:
.... Long-term Counterparty Risk Assessment,
Downgraded to A2(cr) from A1(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to A2 from A1
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Long-term Issuer Rating,
Affirmed A2, Outlook Changed To Stable From Negative
..Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: SpareBank 1 Nord-Norge
..Downgrades:
.... Long-term Counterparty Risk Rating,
Downgraded to A1 from Aa3
.... Long-term Counterparty Risk Assessment,
Downgraded to A1(cr) from Aa3(cr)
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Long-term Issuer Rating,
Affirmed A1, Outlook Changed To Stable From Negative
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
.... Junior Subordinate Medium-Term
Note Program, Affirmed (P)Baa3
....Subordinate Medium-Term Note Program,
Affirmed (P)Baa2
....Pref. Stock Non-cumulative
,Affirmed Ba1 (hyb)
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Outlook Changed To Stable From Negative
....Long-term Bank Deposits,
Affirmed A1, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: SpareBank 1 Ostlandet
..Downgrades:
.... Long-term Counterparty Risk Assessment,
Downgraded to A1(cr) from Aa3(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to A1 from Aa3
..Affirmations:
.... Short-term Counterparty Risk Assessment
, Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Long-term Issuer Rating,
Affirmed A1, Outlook Changed To Stable From Negative
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
.... Junior Subordinate Medium-Term
Note Program, Affirmed (P)Baa3
....Subordinate Medium-Term Note Program,
Affirmed (P)Baa2
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Outlook Changed To Stable From Negative
....Long-term Bank Deposits,
Affirmed A1, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: SpareBank 1 SR-Bank ASA
..Downgrades:
.... Long-term Counterparty Risk Assessment
, Downgraded to A1(cr) from Aa3(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to A1 from Aa3
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Long-term Issuer Rating ,
Affirmed A1, Outlook Changed To Stable From Negative
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
.... Junior Subordinate Medium-Term
Note Program, Affirmed (P)Baa3
.... Subordinate Medium-Term Note Program,
Affirmed (P)Baa2
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Outlook Changed To Stable From Negative
....Subordinate Regular Bond/Debenture,
Affirmed Baa2 (hyb)
....Subordinate Regular Bond/Debenture,
Affirmed Baa2
....Long-term Bank Deposits,
Affirmed A1, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Negative
Issuer: SpareBank 1 SMN
..Downgrades:
.... Long-term Counterparty Risk Assessment,
Downgraded to A1(cr) from Aa3(cr)
.... Long-term Counterparty Risk Rating,
Downgraded to A1 from Aa3
..Affirmations:
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Long-term Issuer Rating,
Affirmed A1, Outlook Changed To Stable From Negative
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)A1
.... Junior Subordinate Medium-Term
Note Program, Affirmed (P)Baa3
.... Subordinate Medium-Term Note Program,
Affirmed (P)Baa2
....Senior Unsecured Regular Bond/Debenture,
Affirmed A1, Outlook Changed To Stable From Negative
....Subordinate Regular Bond/Debenture,
Affirmed Baa2 (hyb)
....Long-term Bank Deposits,
Affirmed A1, Outlook Changed To Stable From Negative
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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