Stockholm, January 29, 2021 -- Moody's Investors Service (Moody's) has today upgraded the long-term
bank deposit and long-term issuer ratings of Sparebanken Oest,
and Sparebanken Sogn og Fjordane to A1 from A2; the long-term
bank deposit and long-term issuer ratings of OBOS-banken
AS have been upgraded to A3 from Baa1; the bank deposit ratings of
Sbanken ASA have been upgraded to A2/P-1 from A3/P-2,
its senior unsecured MTN program rating to (P)A2 from (P)A3 and its short-term
program rating to (P)P-1 from (P)P-2. Moody's
has also placed SpareBank 1 BV's A2 long-term bank deposit
and long-term issuer ratings on review for an upgrade.
Concurrently, the rating agency also affirmed the short-term
bank deposit ratings of Sparebanken Oest, Sparebanken Sogn og Fjordane
and SpareBank 1 BV at P-1, and OBOS-banken AS at P-2.
The outlook on Sparebanken Oest's, Sparebanken Sogn og Fjordane's
and OBOS-banken AS's long-term bank deposit and long-term
issuer ratings remains stable. The outlook on Sbanken ASA's
long-term bank deposit ratings remains positive.
The rating upgrades are driven by Moody's expectation that the banks
will issue additional loss-absorbing instruments, mainly
in the form of senior non-preferred (SNP) debt, classed as
"junior senior" unsecured notes by Moody's, following the assignment
of minimum requirements for own funds and eligible liabilities (MREL)
by the Norwegian Financial Supervisory Authority (FSA) on 14 December
2020. Future issuance of additional loss-absorbing debt
will potentially reduce loss severity for junior depositors and senior
unsecured creditors according to Moody's Advanced Loss Given Failure (LGF)
analysis.
The review for upgrade on SpareBank 1 BV's ratings will focus on
the degree to which the bank will issue additional loss-absorbing
instruments, as well as the likely scale of increase in the bank's
tangible banking assets which would follow the bank's previously
announced merger with SpareBank 1 Telemark, and which is expected
to complete in 2021, subject to regulatory approvals.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL439604
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
-- UPGRADE OF RATINGS REFLECTS GREATER EXPECTED VOLUMES
OF MREL-ELIGIBLE NOTES
The upgrade of the respective banks' deposit and issuer ratings
reflects changes to Moody's forward-looking view of the banks'
liability structures at the end of 2023 when the banks are required to
fully meet their MREL with instruments that are subordinated to senior
creditors, the subordination requirement, including the SNP
class of debt which has been introduced in Norway in order to facilitate
loss-absorption and recapitalisation via a debt conversion or write-down
of junior senior notes in resolution.
Until 1 January 2024, banks in Norway may also meet part of their
MREL using senior unsecured debt with a remaining maturity of more than
one year.
The rating agency's analysis indicates that following the expected issuance
of a larger volume of more subordinated liabilities the depositors and
other senior creditors of the banks are likely to face a lower severity
of loss in the event of the bank's failure leading to a 1 notch
upgrade in their respective ratings.
Moody's assumption of a low probability of government support, results
in no additional rating uplift in any rated instruments.
-- REVIEW FOR UPGRADE ON SPAREBANK 1 BV'S DEPOSIT
AND ISSUER RATINGS
The review for upgrade on SpareBank 1 BV's long-term bank
deposit and long-term issuer ratings will consider the degree to
which meeting MREL and the subordination requirement will result in the
bank issuing sufficient additional loss-absorbing instruments to
reduce the losses faced by senior creditors following its expected merger
with SpareBank 1 Telemark later this year.
On 30 November 2020, SpareBank 1 BV announced its intention to merge
with SpareBank 1 Telemark, subject to regulatory approvals from
both the Norwegian Financial Authority and Competition Authority.
The size of the transaction will have a material impact on SpareBank 1
BV's liability structure and subsequently the amounts of loss-absorbing
instruments required to fulfill regulatory requirements. The rating
agency's review will consider whether the bank's future funding
plans will deliver sufficient volumes of additional loss-absorbing
instruments to reduce loss severity for depositors and senior unsecured
creditors by end 2023 according to Moody's Advanced LGF analysis.
It is anticipated that deposit and issuer ratings could be upgraded by
up to one notch.
-- IMPLEMENTATION OF BRRD2 IN NORWAY UNLIKELY TO MATERIALLY
CHANGE THE VOLUME OF SNP ISSUANCE BY THE BANKS
Moody's believes that there is a low likelihood that the implementation
of revisions to the Bank Recovery and Resolution Directive (BRRD2) in
Norway will result in a significantly lower level of SNP issuance by the
banks. In particular the agency does not expect the application
of the directive's subordination cap (equivalent to 27% of risk
weighted assets) to significantly reduce the level of subordination for
Norwegian banks currently in receipt of a recapitalisation requirement.
This is because the framework includes a number of potential exceptions
to the cap, particularly in the case of larger banks, or for
those banks where there is an assumption that use of resolution funding
would be required to facilitate resolution.
Accordingly, the rating agency expects that Norwegian banks' funding
plans will most likely remain substantially unchanged and continue to
be driven by the initial implementation of the BRRD rules. However,
the ability of authorities to apply such exceptions to a broad range of
banks remains untested, and clarity depends on the incorporation
of BRRD2 in the European Economic Area agreement, implementation
in Norwegian law and finally the setting of individual requirements by
the Norwegian FSA (the resolution authority). Should the final
implementation of BRRD2 result in lower subordination requirements for
the banks, and therefore lower volumes of SNP debt, this could
lead to a negative rating action.
Please see the report "Banks - Nordic Countries: FAQ:
Nordic banks' new non-preferred senior debt instruments" (https://www.moodys.com/research/--PBC_1122335)
for additional details on the junior senior notes and the risks they pose
to creditors.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The banks' ratings could be upgraded or downgraded in response to
an upgrade or downgrade of their Baseline Credit Assessments (BCA).
Respectively for each bank:
--- SPAREBANKEN OEST
Over time, upward pressure on the BCA could develop if the bank
demonstrates (1) strong earnings generation without an increase in its
risk profile or worsening in its business development; and (2) sustained
good asset quality in its retail and corporate books and a decline in
sector/single borrower concentration while maintaining adequate cash coverage
of problem loans.
Future downward BCA pressure would emerge if (1) Sparebanken Oest's credit
risk profile worsens through a material increase in its problem loans
ratio, or elevated sectoral or borrower concentration; (2)
any indication that the bank's franchise and market position deteriorates,
which will likely lead to earnings erosion; or (3) funding conditions
become more difficult that would challenge the bank's refinancing capacity.
Sparebanken Oest's ratings could also be downgraded in case the
bank issues a significantly lower volume than expected of junior senior
securities.
--- SPAREBANKEN SOGN OG FJORDANE
Upward rating pressure could develop if Sparebanken Sogn og Fjordane (SSF)
demonstrates (1) sustained strong asset quality in its retail and corporate
loan books, including in the more volatile segments, and further
reduction in credit concentrations; (2) stronger earnings generation
without an increase in its risk profile; and (3) broader shareholder
base and capital structure that will improve its capacity to raise new
capital if needed.
Future downward rating pressure would emerge if (1) SSF's risk profile
increases as a result of increased concentration, for example if
construction and real-estate concentration or top-20 client
concentration as a percent of Core Tier 1 Capital exceeds 150%
or if the problem loan ratio increases significantly higher than its domestic
peers' average; (2) financing conditions become more difficult locally,
from where the bank raises most of its funding.
Sparebanken Sogn og Fjordane's ratings could also be downgraded in case
the bank issues a significantly lower volume than expected of junior senior
securities.
--- OBOS-BANKEN AS
OBOS-banken AS's ratings may be upgraded as a result of (1) a longer
track record of strong asset quality and low loan losses, particularly
through an entire economic cycle, along with a more moderate rate
of loan growth and a seasoning of the bank's loan portfolio; (2)
a sustainable improvement in profitability without an increase in its
risk profile; and/or (3) reduced reliance on market funding.
Conversely, downward pressure could develop on OBOS-banken
AS's ratings if there is (1) a significant deterioration in its asset-quality
metrics or an increase in its risk appetite, such as a higher proportion
of unsecured lending; (2) a sustained weakening in capital;
or (3) a decrease in the liquidity held on the bank's balance sheet.
OBOS-banken AS's ratings could also be downgraded in case the bank
issues a significantly lower volume than expected of junior senior securities,
or the amount of outstanding unsecured debt together with junior deposits
does not grow in line with asset growth.
--- SBANKEN ASA
Sbanken ASA's long-term deposit ratings remain on positive
outlook reflecting that the ratings could be further upgraded provided
that Sbanken ASA continues to (1) exhibit resilience in its financial
performance; (2) is able to sustain its strong asset quality and
capitalization; and (3) maintain a moderate level of credit growth.
Given the positive outlook, a downgrade is unlikely but Sbanken
ASA's ratings could also be subject to downward pressure if (1)
there were a significant reduction in capital, as a result of a
distribution or as a result of a material deterioration in Sbanken ASA's
asset quality; (2) financing conditions become more difficult or
the macroeconomic environment deteriorates more than currently expected,
leading to a lower Macro Profile, while its recurring profitability
were to deteriorate from current level; or (3) the proportion of
market funds were significantly increase.
Sbanken ASA's ratings could also be downgraded in case the bank
issues a significantly lower volume than expected of junior senior securities.
--- SPAREBANK 1 BV
During the review period, SpareBank 1 BV's long-term
bank deposit and long-term issuer ratings could be upgraded by
one notch. The rating upgrade is subject to 1) the merged bank's
future funding plans in combination with the application of Moody's
advanced forward-looking LGF analysis on the bank's liability
structure and 2) the combined bank's continued strong performance
demonstrated by a sustained low level of problem loans, good access
to capital markets and sustained robust earnings without compromising
its risk profile.
Given the review for upgrade, Moody's is unlikely to downgrade
SpareBank 1 BV's ratings during the review period. However,
future downward rating pressure would emerge if (1) SpareBank 1 BV's problem
loan ratio was to deteriorate materially as a result of the Coronavirus
outbreak; (2) financing conditions were to become more difficult;
(3) its risk profile were to increase, for example as a result of
an increasing exposure to more volatile sectors such as commercial real
estate; and/or (4) macroeconomic environment were to deteriorate
leading to adverse developments in the Norwegian real-estate market.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL439604
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• EU Endorsement Status
• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
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 person who approved SpareBank 1 BV, Sbanken ASA credit ratings
is Simon Ainsworth, Associate Managing Director, Financial
Institutions Group, 44 20 7772 5456, 44 20 7772 5454.
The person who approved Sparebanken Oest, Sparebanken Sogn og Fjordane,
OBOS-banken AS credit ratings is Sean Marion, MD-Financial
Institutions, Financial Institutions Group, 44 20 7772 5456,
44 20 7772 5454.
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.
Mattias Eric Frithiof
AVP-Analyst
Financial Institutions Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
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 (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
