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Rating Action:

Moody's reviews six Norwegian banks' ratings for possible downgrade

22 Jul 2009

London, 22 July 2009 -- Moody's Investors Service today placed on review for possible downgrade the bank financial strength ratings (BFSRs) and/or the long-term debt and deposit, subordinated and hybrid ratings of six Norwegian banks: DnB NOR Bank ASA, Nordea Bank Norge ASA, SpareBank 1 SMN, SpareBank 1 SR-Bank, Sparebanken Vest and Sparebanken Oest.

At the same time, the rating agency affirmed the ratings of Storebrand Bank ASA and SpareBank 1 Gruppen AS and changed the outlook on SpareBank 1 Nord-Norge's long-term ratings to negative.

The rating agency expects to conclude its reviews on the majority of these entities within a few weeks.

The rating agency anticipates that in most cases downgrades of the long-term debt and deposit ratings will be limited to one or two notches. Although Moody's expects the banks' BFSRs to come under increasing pressure, it believes that banks in highly rated countries are likely to receive support depending on their level of systemic importance. This should in general result in a more limited impact on the debt and deposit ratings than the BFSRs.

The full list of ratings affected for these institutions can be found below.

Today's rating actions on the BFSRs were prompted by Moody's expectation that Norwegian banks will experience increasing deterioration in asset quality over the coming quarters. This is likely to lead to higher credit-related write-downs than previously anticipated in the ratings, exerting adverse pressure on profitability and capitalisation. The anticipated deterioration in asset quality reflects the weaker outlook for the Norwegian corporate sector in the ongoing economic downturn -- the commercial real estate, shipping and retail trade sectors are expected to be affected in particular.

So far, the Norwegian economy has been more resilient to the global slowdown than the other Nordic countries, but continued low global demand is depressing exports and a turnaround for manufacturing and industry in general is highly dependent on the economic recovery of Norway's trading partners. In addition, the household debt burden remains high. Moody's expects GDP to contract by around 1% in 2009 and unemployment is rising, albeit from a low base.

Moody's has recently described the assumptions behind its framework for estimating Nordic banks' credit losses in a special comment entitled "Moody's Approach to Estimating Nordic Banks' Credit Losses" published on 16 July 2009.

In this context, those Norwegian banks whose ratings have been placed on review for downgrade today are those whose key credit drivers Moody's views as being the most vulnerable to weaker performance in their BFSR rating categories, under its anticipated (base) and worse-than-expected (stressed) scenarios. Among the key credit drivers, Moody's focus is in particular on current capital adequacy levels in relation to the banks' specific asset composition and their respective anticipated loss levels. The rating agency's expected macroeconomic scenario, referenced in the preceding paragraph, is used to establish its baseline expectations for a bank's performance, while its worse-than-expected case helps to measure a bank's potential vulnerability in the event of a shift to a more adverse environment.

More specifically, the banks that are most likely to have their BFSRs downgraded are those with lower capital adequacy levels compared with their exposures to asset classes embedding the highest expected losses, in accordance with Moody's published assumptions in the aforementioned Special Comment. These asset classes include for example exposures to construction, shipping and real estate.

Since 2008, the financial performance of Norwegian banks has been affected by the deterioration in the corporate sector resulting in an increase in non-performing loans and loan loss provisions, which together with negative valuation effects on financial investments has exerted pressure on profitability. Therefore, Moody's has in the past 12 months taken certain rating actions on selected Norwegian banks with weakened financials.

REVIEW OF SENIOR DEBT AND DEPOSIT RATINGS

In reviewing each bank's deposit and senior debt ratings, Moody's will consider (i) the support currently available to the bank, as well as the probability of support once stability returns to the markets and the system, (ii) the systemic importance of the rated institution, (iii) the bank's intrinsic financial strength rating, (iv) other sources of external support, in particular parental support and (v) the long-term viability of the bank's franchise and its ability to withstand the current financial crisis without being permanently impaired.

REVIEW OF BANK FINANCIAL STRENGTH RATINGS

Moody's review of the BFSRs will focus in particular on: (i) the amount of capital the bank has available to absorb anticipated credit losses on its risk assets and (ii) the entity's internal capital generation capacity to replenish their capital cushions in the context of lower revenue growth in the deteriorating economic environment.

Banks that would be more affected by the BFSR downgrades would be the ones with lower capital adequacy levels and larger exposures to asset classes embedding the highest anticipated losses, in accordance with Moody's assumptions, for example, exposures to construction, shipping and real estate.

Moody's BFSR methodology remains unchanged, though the weight attached to certain rating considerations, particularly capital and future earnings prospects, has been increased to better reflect the present conditions. The refinement to Moody's approach to rating banks in this environment is discussed in a Special Comment entitled "Calibrating Bank Ratings in the Context of the Global Financial Crisis", which was published in February 2009.

REVIEWS FOR POSSIBLE DOWNGRADES OF BFSRs AND/OR DEBT AND DEPOSIT RATINGS

The rating action on Nordea Bank Norge ASA and other Nordea subsidiaries -- BFSR and long-term ratings placed on review for possible downgrade -- is commented on a separate press release together with that on its parent, Nordea Bank AB.

DnB NOR Bank ASA

Moody's placed the B- BFSR and Aa1 long-term ratings of DnB NOR Bank on review for possible downgrade. The review will focus on the impact of potential losses in the loan portfolio on the bank's capital position; of particular concern to the rating agency is the low capital level combined with exposures to sectors deemed risky in the current economic downturn including shipping and commercial real estate as well as the bank's exposures to the Baltic states via its joint venture, DnB NORD. DnB NOR Bank's Tier 1 ratio was 7.5% at the end of June 2009 (according to Basel II transitional rules). The rating agency says that the BFSR could be downgraded by more than a single notch, which would likely result in a downgrade of the long-term rating of more than one notch.

The following ratings of DnB NOR Bank were affected:

- B- BFSR on review for possible downgrade;

- Aa1 long-term deposit and senior unsecured ratings on review for possible downgrade;

- Aa2 subordinate ratings on review for possible downgrade;

- Aa3 preferred stock ratings on review for possible downgrade;

- Prime-1 short-term deposit and commercial paper ratings affirmed.

Moody's last rating action on DnB NOR Bank was on 12 November 2008 when the outlook on the B- BFSR and Aa1 long-term ratings was changed to negative from stable.

SpareBank 1 SMN

Moody's placed SpareBank 1 SMN's C BFSR rating on review for possible downgrade. The review will focus on assessing the impact of potential losses in the bank's loan portfolio, which exhibits concentration on the commercial real estate and exposure to shipping sector. The bank reported a Tier 1 ratio of 8.36% at the end of Q1 2009 (according to Basel II transitional rules).

The following ratings of SpareBank 1 SMN were affected:

- C BFSR on review for possible downgrade;

- A1 long-term deposit, senior unsecured and issuer ratings affirmed, outlook changed to negative;

- A2 subordinate ratings affirmed, outlook changed to negative;

- A3 preferred stock ratings affirmed, outlook changed to negative;

- Prime-1 short-term deposit rating affirmed.

Moody's last rating action on SpareBank 1 SMN was on 17 March 2009 when the BFSR was downgraded to C from C+ with a negative outlook and the long-term ratings to A1 from Aa3 with stable outlook.

SpareBank 1 SR-Bank

Moody's placed SpareBank 1 SR-Bank's A1 long-term ratings on review for possible downgrade. The review will focus on assessing the bank's capital position in light of potential losses in the loan portfolio, which shows a high concentration on the commercial real estate sector and some exposure to shipping. The rating agency is particularly concerned about the bank's low capital level -- the Tier 1 ratio was 6.55% at the end of Q1 2009 (according to Basel II transitional rules).

The following ratings of SpareBank 1 SR-Bank were affected:

- C- BFSR affirmed, outlook changed to negative;

- A1 long-term deposit, senior unsecured and issuer ratings on review for possible downgrade;

- A2 subordinate ratings on review for possible downgrade;

- A3 preferred stock ratings on review for possible downgrade;

- Prime-1 short-term deposit rating affirmed.

Moody's last rating action on SpareBank 1 SR-Bank was on 17 March 2009 when the BFSR was downgraded to C- from C+ with a stable outlook and the long-term ratings to A1 from Aa3 with a negative outlook.

Sparebanken Vest

Moody's placed Sparebanken Vest's C BFSR and A1 long-term ratings on review for possible downgrade. The review will focus on assessing the impact of potential losses on the bank's capital position, taking into consideration past years' strong loan growth and exposures to commercial real estate and shipping. Sparebanken Vest reported Tier 1 ratio of 8.52% at the end of Q1 2009 (according to Basel II transitional rules). Sparebanken Vest has recently applied for NOK960 million of subordinated debt from the State Finance Fund.

The following ratings of Sparebanken Vest were affected:

- C BFSR on review for possible downgrade;

- A1 long-term deposit and senior unsecured ratings on review for possible downgrade;

- A2 subordinate ratings on review for possible downgrade;

- A3 preferred stock ratings on review for possible downgrade;

- Prime-1 short-term ratings affirmed.

Moody's last rating action on Sparebanken Vest was on 10 April 2007 following the refinement of its bank rating methodology.

Sparebanken Oest

Moody's placed Sparebanken Oest's A1 long-term and Prime-1 short-term deposit ratings on review for possible downgrade. Moody's review will focus on potential losses in the loan portfolio and financial investments as well as on the sustainability of the bank's market position and franchise. The rating agency says that the review could result in a downgrade of the long-term deposit rating of up to two notches.

The following ratings of Sparebanken Oest were affected:

- C- BFSR affirmed, outlook changed to negative;

- A1 long-term deposit rating on review for possible downgrade;

- Prime-1 short-term deposit rating on review for possible downgrade.

Moody's last rating action on Sparebanken Oest was on 13 November 2008 when the BFSR was downgraded to C- from C with a negative outlook and the outlook on the A1 long-term rating was changed to a negative.

OUTLOOK CHANGES

SpareBank 1 Nord-Norge

Moody's changed the outlook on SpareBank 1 Nord-Norge's A1 long-term ratings to negative. The negative outlook reflects potential transition risk in the event that the bank's financial strength deteriorates more than Moody's expects. With a Tier 1 ratio of 10.13% at the end of Q1 2009 (according to Basel II transitional rules), Moody's believes that the bank remains appropriately capitalised at the current rating level.

The following ratings of SpareBank 1 Nord-Norge were affected:

- C BFSR with negative outlook affirmed;

- A1 long-term deposit and senior unsecured ratings affirmed, outlook changed to negative;

- A2 subordinate ratings affirmed, outlook changed to negative;

- A3 preferred stock ratings affirmed, outlook changed to negative;

- Prime-1 short-term deposit rating affirmed.

Moody's last rating action on SpareBank 1 Nord-Norge was on 17 March 2009 when the BFSR was downgraded to C from C+ with negative outlook and the long-term ratings to A1 from Aa3 with stable outlook.

RATING AFFIRMATIONS

Storebrand Bank ASA

Moody's affirmed Storebrand Bank's C- BFSR and A3 long-term ratings. The outlook remains negative.

The following ratings of Storebrand Bank were affirmed:

- C- BFSR with a negative outlook;

- A3 long-term deposit and senior unsecured ratings with a negative outlook;

- Baa1 subordinate ratings with a negative outlook;

- Prime-2 short-term ratings.

Moody's last rating action on Storebrand Bank was on 7 May 2009 when the debt and deposit ratings were downgraded to A3/Prime-2 with a negative outlook on the BFSR and long-term ratings.

SpareBank 1 Gruppen AS

Moody's affirmed SpareBank 1 Gruppen's Baa1 issuer rating. The outlook remains negative.

The following ratings of SpareBank 1 Gruppen were affirmed:

- Baa1 long-term issuer rating with a negative outlook

- Prime-2 short-term issuer rating

Moody's last rating action on SpareBank 1 Gruppen was on 17 March 2009 when the long-term issuer rating was downgraded to Baa1 with a negative outlook.

Please note that this press release does not deal with possible implications for the Norwegian covered bond ratings.

RATING METHODOLOGIES

The principal methodologies used in the above rating actions are "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" and "Bank Financial Strength Ratings: Global Methodology", which can be found at <A href="http://www.moodys.com">www.moodys.com</A> in the Credit Policy & Methodologies directory, in the Ratings Methodologies sub-directory. Other methodologies and factors that may have been considered can also be found in the Credit Policy & Methodologies directory.

DnB NOR Bank ASA, headquartered in Oslo, Norway, reported total assets of NOK1,614 billion (EUR180 billion) at the end of March 2009.

SpareBank 1 Gruppen ASA, headquartered in Oslo, Norway, reported total assets of NOK56 billion (EUR5.8 billion) at the end of March 2009.

SpareBank 1 Nord-Norge, headquartered in Tromsø, Norway, reported total assets of NOK64 billion (EUR7.1 billion) at the end of March 2009.

SpareBank 1 SMN, headquartered in Trondheim, Norway, reported total assets of NOK85 billion (EUR9.5 billion) at the end of March 2009.

SpareBank 1 SR-Bank, headquartered in Stavanger, Norway, reported total assets of NOK124 billion (EUR13.8 billion) at the end of March 2009.

Sparebanken Vest, headquartered in Bergen, Norway, reported total assets of NOK92 billion (EUR10.3 billion) at the end of March 2009.

Sparebanken Øst, headquartered in Drammen, Norway, reported total assets of NOK25 billion (EUR2.8 billion) at the end of March 2009.

Storebrand Bank ASA, headquartered in Oslo, Norway, reported total assets of NOK45 billion (EUR5.0 billion) at the end of March 2009.

London
Reynold R. Leegerstee
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Janne Thomsen
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's reviews six Norwegian banks' ratings for possible downgrade
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