FINANCIAL INSTITUTIONS

CREDIT OPINION Sparebanken Vest 17 July 2020 Update to credit analysis

Update Summary Sparebanken Vest's A1 long-term deposit and senior unsecured debt ratings are primarily driven by its Baseline Credit Assessment (BCA) of baa1. The bank's BCA is underpinned by its strong regional retail franchise, good capital metrics, strong asset quality and earnings performance with a track record of low loan losses. The bank’s strong financial fundamentals, RATINGS with a common equity Tier 1 (CET1) ratio of 17.3% and a problem loans to gross loans ratio Sparebanken Vest of 0.7% as of March 2020, compare favourably with those of its local and global peers with Domicile , similar BCA and ratings. Long Term CRR A1 Type LT Counterparty Risk Sparebanken Vest's BCA also captures moderate risks stemming from its relatively narrow Rating - Fgn Curr geographical focus alongside exposure to certain volatile sectors, such as commercial real Outlook Not Assigned Long Term Debt A1 estate and construction. These exposures, together with the bank's sizeable residential Type Senior Unsecured - Fgn mortgage book, could render it vulnerable to a potential material fall in property prices Curr in Norway (Aaa stable). Additional risks stem from (1) the relatively high household debt Outlook Positive Long Term Deposit A1 burden in Norway; and (2) the bank's high dependence on market funding, which could Type LT Bank Deposits - Fgn become costly or unavailable in a prolonged stress scenario. Curr Outlook Positive Sparebanken Vest's A1 deposit and senior unsecured debt ratings take also into account our advanced forward-looking Advanced Loss Given Failure (LGF) analysis of the bank's liability Please see the ratings section at the end of this report structure, incorporating the issuance of minimum requirement for own funds and eligible for more information. The ratings and outlook shown reflect information as of the publication date. liabilities (MREL) securities by the end of 2023, which provides three notches of rating uplift from its BCA.

Exhibit 1 Contacts Rating Scorecard - Key financial ratios Nondas Nicolaides +357.2569.3006 Sparebanken Vest (BCA: baa1) Median baa1-rated banks VP-Sr Credit Officer 20% 35% [email protected] 18% 30% 16%

Katarzyna +44.20.7772.1047 Liquidity Factors 14% 25% Szymanska 12% 20% Associate Analyst 10% [email protected] 8% 15% 6% 10% Solvency FactorsSolvency Simon James Robin +44 207 772 5347 4% Ainsworth 0.6% 5% 2% 0.8% 18.0% 29.1% 10.5% Associate Managing Director 0% 0% [email protected] Asset Risk: Capital: Profitability: Funding Structure: Liquid Resources: Problem Loans/ Tangible Common Net Income/ Market Funds/ Liquid Banking Gross Loans Equity/Risk-Weighted Tangible Assets Tangible Banking Assets/Tangible Sean Marion +44.20.7772.1056 Assets Assets Banking Assets MD-Financial Institutions Solvency Factors (LHS) Liquidity Factors (RHS) [email protected] These are our Banks Methodology scorecard ratios. Asset risk and profitability reflect the weaker of either three-year average and latest figure. Capital is the latest reported figure. Funding structure and liquid resources reflect the latest fiscal year-end figures. Source: Moody's Investors Service MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths » Despite the coronavirus-related economic challenges in 2020, Norway's operating environment translates into a Very Strong- Macro Profile for banks.

» The bank's solid capital provides a good loss-absorption buffer.

» The bank has relatively low impairments and strong underlying core earnings on the back of an increasing market share and a robust digital offering.

Credit challenges » Relatively narrow geographic credit concentrations combined with certain exposures to cyclical sectors, although the bank's loan book performance has been resilient so far.

» Sparebanken Vest's reliance on market funding could adversely affect its liquidity in case of material fluctuations in investor sentiment.

Outlook The positive outlook on Sparebanken Vest’s deposit ratings recognises the bank’s improving asset quality and profitability combined with better efficiency levels in recent years, as well as its growing deposits and relatively strong capital base. We believe that any setbacks posed by the coronavirus are unlikely to significantly affect the bank's underlying strong financial fundamentals and solvency, and that it has the buffers and resilience to weather the challenges in 2020.

Accordingly, the positive outlook reflects our view that the bank has the potential to achieve a higher BCA over the next 12-18 months. Factors that could lead to an upgrade The bank’s positive rating outlook could result in a deposit and senior unsecured debt rating upgrade over the next 12-18 months, should the bank continue to demonstrate resilience in its financial performance and an ability to maintain strong levels of asset quality and capitalisation, combined with satisfactory recurring profitability. Factors that could lead to a downgrade In view of the bank’s positive rating outlook, Moody’s does not expect any downward pressure on the bank’s BCA over the next 12-18 months. Although unlikely, a potential reduction in the rating uplift as a result of Moody’s Advanced LGF analysis, triggered by lower loss-absorbing cushion (subordinated liabilities) for the bank’s senior creditors, could lead to a rating downgrade.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

2 17 July 2020 Sparebanken Vest: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Key indicators

Exhibit 2 Sparebanken Vest (Consolidated Financials) [1]

03-202 12-192 12-182 12-172 12-162 CAGR/Avg.3 Total Assets (NOK Billion) 219.2 195.4 186.9 172.1 160.0 10.24 Total Assets (USD Million) 20,876.6 22,239.8 21,587.1 21,042.4 18,586.8 3.64 Tangible Common Equity (NOK Billion) 14.9 15.5 14.0 12.8 11.8 7.64 Tangible Common Equity (USD Million) 1,423.3 1,766.4 1,621.5 1,561.6 1,370.2 1.24 Problem Loans / Gross Loans (%) 0.7 0.6 0.9 1.0 1.0 0.95 Tangible Common Equity / Risk Weighted Assets (%) 18.0 19.3 16.2 15.8 15.6 17.06 Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 8.0 6.6 9.3 10.9 11.0 9.25 Net Interest Margin (%) 1.6 1.6 1.5 1.5 1.5 1.55 PPI / Average RWA (%) 2.3 2.6 2.3 2.1 2.0 2.36 Net Income / Tangible Assets (%) 0.6 1.0 0.8 0.8 0.8 0.85 Cost / Income Ratio (%) 45.3 40.2 43.4 47.0 50.0 45.25 Market Funds / Tangible Banking Assets (%) 33.6 29.1 31.1 32.5 30.7 31.45 Liquid Banking Assets / Tangible Banking Assets (%) 14.4 10.5 12.6 12.3 12.9 12.55 Gross Loans / Due to Customers (%) 215.3 213.2 220.5 214.3 206.3 213.95 [1]All figures and ratios are adjusted using Moody's standard adjustments. [2]Basel III - fully loaded or transitional phase-in; IFRS. [3]May include rounding differences because of the scale of reported amounts. [4]Compound annual growth rate (%) based on the periods for the latest accounting regime. [5]Simple average of periods for the latest accounting regime. [6]Simple average of Basel III periods. Sources: Moody's Investors Service and company filings

Profile Sparebanken Vest is a large regional bank that operates mainly in western Norway. The bank provides a range of retail banking, corporate banking, treasury and estate agency services, including (1) financing, savings and investment products; (2) advisory services; and (3) trading activities. The bank also distributes life and general insurance, and it offers securities brokerage and leasing services through certain jointly owned companies of which it is the majority owner. As of 31 March 2020, the bank reported total assets of NOK220 billion ( around €19 billion). Recent developments We have revised our growth forecasts downward for 2020 as the coronavirus pandemic is causing an unprecedented shock to the global economy. Business activity will likely fall sharply across advanced economies, and we expect global economic recovery to be delayed. We expect a gradual recovery beginning in the second half of the year, but that outcome will depend on whether governments can reopen their economies while also safeguarding public health. A rebound in demand will determine the ability of businesses and labour markets to recover from the shock. We now expect real GDP for the global economy to contract in 2020, followed by a recovery in 2021.

We note that since 13 March 2020, Norway's central bank, the Ministry of Finance and the Norwegian FSA have taken a number of actions aiming to alleviate the impact on the economy from both the Coronavirus lockdown and the oil price drop. These measures include the reduction of the key policy rate by 150 basis points (bps), reducing banks' countercyclical buffer requirement by 150 bps, providing special F-loans to banks to help manage any funding and liquidity stress, as well as extension of unemployment benefits and various social policy schemes to support individuals. We believe these measures will help alleviate the negative impact stemming from the coronavirus outbreak, and will largely sustain borrowers' solvency in the longer term.

Nonetheless, the inevitable negative impact on both the economy and banks in the next 12-18 months, have triggered on 16 April 2020 the change of our Banking System Outlook (BSO) for Norway to negative from stable. The outlook change was also driven by our expectation that sectors such as tourism, hospitality and transportation are more vulnerable to the pandemic, and by the fact that very low oil prices have historically strained Norway's oil/offshore industry that remains a significant pillar of the economy.

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Detailed credit considerations A deteriorating operating environment will likely exert pressure on banks' fundamentals in 2020, although the overall strength of the Norwegian government finances remain supportive to the banking system Sparebanken Vest's operating environment is purely domestic, and thus its Macro Profile is aligned with that of Norway at Very Strong-.

Although Norway's operating environment has deteriorated as a result of the global outbreak of Coronavirus and the drop in oil prices, we believe that the banking system still benefits from the government's generally strong fiscal flexibility and countercyclical buffers available through its sovereign oil fund to respond to economic shocks. Norwegian banks benefit from operating in a wealthy and developed country with very high economic, institutional and government financial strength, as well as a very low susceptibility to event risk. Norway has a diversified and growing economy, which demonstrated resilience to the last weakening in the oil sector in 2014-15.

The main risks to the banking system stem from the high level of household debt, elevated real estate prices and domestic banks’ extensive use of market funding. However, these risks are mitigated by the strength of households’ ability to service debt, banks’ adequate capitalisation and the relatively small size of the banking system compared with the total size of the economy.

Nonetheless, we expect the Norwegian mainland economy (excluding any oil-related activity) to contract significantly in 2020 (-3.5%), and recover to around +3.8% in 2021. Unemployment rose to around 17% as of March 2020, although has come down since then, which combined with the low economic activity will inevitably impact banks' credit growth, asset quality and earnings that will be strained from elevated credit costs.

Loan book performance has been strong and resilient so far, despite high exposure to commercial real estate, construction and residential mortgages Sparebanken Vest's asset-quality performance in the first quarter 2020 has been relatively resilient even though the quarter marked the global coronavirus outbreak and the resulting introduction of lockdown measures in Norway last March. The bank maintained low nonperforming loans (NPLs), despite some exposure to more cyclical sectors, with reported overall problem loans (including performing but doubtful loans) at 0.7% of gross loans in March 2020, compared with 0.6% as of the end of December 2019 (see Exhibit 3). Although, the bank was able to reduce its absolute NPLs by around 25% during 2019, mainly through restructurings of certain large corporate loans, we note the 20% increase during Q1 2020 that suggests a potential marginal increase in the problem loans ratio by the end 2020.

Concurrently, Norwegian banks have mostly front-loaded loan loss provisions in Q1 2020 without any material increases in their problem loan ratios. Sparebanken Vest's credit costs increased in response to the recent pandemic crisis, with loan loss provisions at 0.29% of gross loans as of March 2020, up from 0.03% in December 2019. The increase reflects the bank's conservative approach in front-loading provisions mainly due to the lockdown measures and the oil price decline at the start of the pandemic. The provisioning coverage for problem loans, including general/portfolio provisions, was around 65% as of the end of March 2020, limiting the downside risks to the bank’s earnings and capital from its existing stock of NPLs.

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Exhibit 3 Problem loans as a percentage of gross loans and the cost of risk evolution Sparebanken Vest

Cost of Risk (LLP/Gross Loans) - left axis Problem Loans/Gross Loans - right axis 0.35% 1.20% 1.11% 1.07% 1.07% 1.03% 1.03% 1.02% 0.30% 0.90% 1.00% 0.87% 0.25%

0.72% 0.80% 0.20% 0.62% 0.57% 0.15% 0.29% 0.60%

0.10% 0.40% 0.14% 0.05% 0.12% 0.06% 0.07% 0.03% 0.02% 0.00% 0.01% 0.03% 0.20% 0.00% -0.01% -0.05% 0.00% HY2015 2015 HY2016 2016 HY2017 2017 HY 2018 2018 HY 2019 2019 Q1 2020 Source: Moody's Investors Service, company reports and presentations

Around 68% of the bank’s stock of problem loans relate to the corporate market, although corporate loans comprised around 26% of total gross loans as of the end of March 2020, signifying their higher credit risk profile than retail loans mainly in the form of mortgages. The bulk of corporate NPLs stemmed from the bank’s oil-related shipping exposure, with overall international shipping loans (including performing loans), together with transport loans, comprising around 4.3% of total gross loans as of the end of March 2020. The bank also reported that of its retail book (comprising 74% of total lending) only 1% is in the form of consumer loans while 99% are secured mortgages, strengthening its asset risk profile during the pandemic.

Despite Sparebanken Vest's limited commercial real estate exposure in (main oil hub region), its overall exposure to the property market, including construction, was 12% of total gross loans as of the end of March 2020. We believe this exposure, combined with the sizeable residential mortgage book, could leave the bank vulnerable to a potential material property price decrease in Norway, a common feature among its local peers. Property prices in Norway have been on the rise in the past few years, although the housing market has cooled down since the beginning of 2017, largely because of tighter lending regulations that came into effect in early 2017. However, there was no long-lasting negative impact on the property market in Norway so far as a result of the coronavirus outbreak, with sale prices and volumes sustained since the reopening of the economy.

We make some negative adjustments to the bank’s Asset Risk factor in our scorecard to reflect the sector and geographical concentration. This is because the bank’s assets are confined to Western Norway (mainly in , and Rogaland), limiting its geographical diversification. Nonetheless, the strength of the bank's growing residential mortgages in the last few years, with around 94% of the book having a loan-to-value (LTV) ratio of less than 70% in March 2020, continues to support its underlying core operations and earnings. Our Asset Risk score also takes into consideration a certain level of restructured loans that are not classified as impaired or nonperforming, and could hide risks, as well as our expectation that there will be a marginal deterioration in the bank's corporate book especially from sectors impacted by the coronavirus. The bank claims that only around 10% of its corporate exposures have been impacted by the outbreak in various degrees.

Solid capital provides a good loss-absorption buffer In line with many Norwegian savings banks, Sparebanken Vest has increased its capital ratios in accordance with the higher regulatory capital requirements in recent years. However, in response to the global coronavirus outbreak and resulting economic stress, the Norwegian FSA has revised banks' capital requirements during the first quarter of 2020. Accordingly, the countercyclical capital buffer requirement has been lowered by 150 basis points to allow more flexibility, while banks were requested to also reconsider their dividend payments for 2019.

Sparebanken Vest's BCA of baa1 is supported by its solid capital position, with a Common Equity Tier 1 (CET1) capital ratio at 17.3% as of the end of March 2020, slightly lower from 17.5% as of the end of December 2019 but significantly higher than its 12.7% CET1 requirement. The bank has been able to accumulate significant retained earnings in the last couple of years and its risk-weighted assets (RWAs) were reduced by around 7.2% in December 2019 due to the implementation of CRR/CRD IV in Norway combined with the

5 17 July 2020 Sparebanken Vest: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

removal of the 80% Basel I floor. As of the end of March 2020, Sparebanken Vest’s Tier 1 capital ratio was also a high 18.9% and the bank’s overall capital adequacy ratio was 21% (see Exhibit 4).

Exhibit 4 Sparebanken Vest's capital evolution

CET1 AT1 Supplementary Capital Total Capital Adequacy Ratio 25% 21.2% 21.0% 18.8% 20% 18.6% 18.4% 18.3% 2.0% 18.0% 17.9% 17.9% 2.1% 2.0% 1.7% 1.6% 2.0% 1.8% 1.9% 1.8% 1.8% 1.7% 1.7% 1.6% 1.6% 1.6% 15% 1.5% 1.5% 1.5%

10% 17.5% 17.3% 15.1% 15.0% 15.0% 14.9% 14.7% 14.7% 14.7% 5%

0% Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Note: In December 2019 CRR/CRD IV rules were implemented in Norway, leading to a decrease in IRB-based banks' reported RWAs. Sources: Company reports and presentations

Sparebanken Vest's Pillar 2 capital requirement, as part of the Financial Supervisory Authority (FSA) of Norway's Supervisory Review and Evaluation Process (SREP), is currently 1.7%. Its regulatory minimum CET1 requirement of 12.7% in March 2020 includes a countercyclical capital buffer of 1%, which decreased from 2.5% as of year-end 2019. The 17.3% CET1 ratio combined with a leverage ratio of 7% in March 2020 provides the bank with a good loss-absorption buffer in case of need. In addition, the bank has a CET1 margin of more than 300 basis points to comfortably meet the systemic risk buffer requirement that is set to increase to 4.5% from 3% at the end of 2020.

Sparebanken Vest's BCA Scorecard exhibits relative resilience to any potential deterioration in asset quality and earnings, which supports its BCA of baa1 with positive outlook. However, we make a negative adjustment to the bank’s capital score to reflect the equity certificate capital structure of the bank, with its equity certificate shareholders owning 40% of its total equity base, while the balance is in the form of primary capital. The relatively low proportion of equity certificate ownership of the bank's total equity, could prove difficult for the bank to raise new significant capital in case of need during adverse conditions, in view of the potential dilution of its shareholders.

Relatively low impairments and strong underlying core earnings on the back of an increasing market share and a robust digital offering In response to the economic stress from the coronavirus outbreak the Norges Bank has carried out three rate cuts totaling 150 basis points since March 2020, while prior to this period the key policy rate was on an increasing trend. Low loan rates (interest rate adjustments were implemented quicker than the usual 6 weeks notice) coupled with an already fierce competition among Norwegian banks will likely put pressure on Sparebanken Vest’s net interest margin (NIM increased to 1.61% in Q1 2020 from 1.5% in Q1 2019) and profitability metrics in 2020.

Sparebanken Vest reported a net profit of NOK318 million during the first quarter of 2020, down from NOK408 million during the same period a year earlier, implying around 22% net profit decrease. The change was largely driven by increased provisioning and losses on financial instruments resulting from the coronavirus outbreak, despite the NOK114 million higher net interest income. Sparebanken Vest's reported return on equity decreased to 7.7% in March 2020 from 13.5% in year-end 2019 (see Exhibit 5).

Despite the likely mild pressure in the bank's performance in 2020, we expect it to continue to generate strong recurring core earnings in the next 12-18 months, benefiting from its entrenched franchise, more efficient organisation after its restructuring and increased digital use and services. We also acknowledge the bank's ability to increase its market share in its home region, as illustrated over the last 12 months, despite a fiercely competitive landscape. The launch of a purely digital mortgage bank (Bulder Bank), by leveraging its existing in-house digital expertise and robust IT platform and systems is also likely to contribute to the bank's earnings going forward.

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Our assigned Profitability score also takes into account the bank's relatively high reliance on net interest income (comprised around 75% of total income in 2019), coupled with our expectation of continued intense competition in the market that will continue to exert pressure on its retail lending margins.

Exhibit 5 Profitability metrics Sparebanken Vest

Return on Equity - left axis Costs as % of Average Assets - right axis 16% 1.4% 1.27% 1.22% 1.20% 14% 1.2% 1.10% 1.06% 0.99% 12% 0.95% 0.90% 1.0% 0.86% 10% 0.81% 0.77% 0.75% 0.8% 8% 13.3% 13.7% 13.1% 13.50% 0.6% 6% 11.9% 11.2% 11.7% 11.0% 11.0% 8.9% 0.4% 4% 8.0% 7.70%

2% 0.2%

0% 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Note: Q1 2020 ratios are annualised. Source: Company reports and presentations

Sparebanken Vest has established several product companies, enabling it to gain a foothold in life and non-life insurance (Frende Forsikring, 39.7% ownership), securities brokerage (Norne Securities, 47.6%), leasing (Brage Finans, 49.99%) and real estate agency services (Eiendomsmegler Vest, 100%). The bank also owns 36% of Balder Betaling AS, which holds ownership stakes in the mobile phone payment system, Vipps, and issues covered bonds to fund its operations through its wholly owned covered bond company, Sparebanken Vest Boligkreditt AS. The contribution from associated companies in Q1 2020 was a loss of NOK29 million, compared with the profit of NOK20 million in the same period in 2019, mostly due to negative investment return of Frende.

Sparebanken Vest's cost-to-income ratio increased to 46.7% in March 2020, up from 41.8% reported in March 2019, due to increased provisioning and losses on financial instruments. However, the bank is still highly efficient compared to both local and global peers. The bank has improved significantly its efficiency in the last 13 years (annualised costs as a proportion of average assets reduced to 0.75% in Q1 2020 from 1.64% in 2006), reflecting the efforts towards the rationalisation of its operations (number of branches reduced to 33 in 2019 from 71 in 2011), with increased digital use and improved processes.

Sparebanken Vest's reliance on market funding could adversely affect its liquidity because of fluctuations in investor sentiment Similar to its local peers, Sparebanken Vest has a relatively high dependence on capital market funding, which stood at 33.6% of tangible banking assets at the end of March 2020. The bank’s gross loan-to-deposit ratio was relatively high at around 215% in March 2020, indicating a deposit shortage in the market (because of a high level of disintermediation) to adequately fund its loan book. However, we recognise the bank’s strong ability and track record to raise debt instruments in the market at favourable rates, while we do not anticipate any disruption in the capital markets as a result of the coronavirus outbreak in view of the normalisation of credit spreads following the significant increase during March-April 2020.

We take into account at a global level the relative stability of covered bonds compared with unsecured market funding through a standard adjustment in our scorecard. Our assigned Funding Structure score indicates that the overall funding profile remains a modest fundamental weakness for Sparebanken Vest because of (1) the inherent confidence sensitivity of the wholesale markets, and (2) the potential for the disruption in the availability of low cost market-based funding.

This weakness is partially mitigated by the good track record of good access to capital markets, including the Norwegian covered bond market, even during challenging economic periods in the country. The bulk of the bank's outstanding debt consists of Norwegian krone- and euro-denominated covered bonds. We also note that on 2 July 2020 the bank raised NOK300 million in senior non-preferred

7 17 July 2020 Sparebanken Vest: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

(SNP) bonds with a fixed coupon of 1.55%, a tenor of six years and first call option for the bank after five years, as part of its funding plans to meet its MREL requirements by the end of 2023.

Sparebanken Vest maintains good liquidity to cover its short-term financing needs, with its liquidity coverage ratio (LCR) at a comfortable 143% as of the end of March 2020, well above the regulatory requirement of 100%. Accordingly, the bank has not made substantial use of the short-term F-loans provided by the Norges Bank due to the coronavirus outbreak. The bank's liquidity is primarily invested mainly in highly rated investment-grade bonds and other Norwegian banks' covered bonds, which inevitably creates some systemic risks in case of liquidity shortage in the local banking system or house price crisis.

A minimum net stable funding ratio requirement (NSFR) of 100% is likely to be applicable in Norway from 2021, which the bank meets with the group’s NSFR ratio at 106% as of March 2020. Around 61% of the bank’s total deposits, which grew by around 1.5% during Q1 2020, come from the retail sector that we consider a more stable funding source, supporting its funding profile. Environmental, social and governance considerations In line with our general view for the banking sector, Sparebanken Vest has a low exposure to environmental risks. See our environmental risk heat map for further information.

We believe banks face moderate social risks. The most relevant social risks for banks arise from the way they interact with their customers. Social risks are particularly high in the area of data security and customer privacy, which is partly mitigated by sizeable technology investments and banks’ long track record of handling sensitive client data. In addition, we regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. See our social risk heat map for further information.

Governance is highly relevant for Sparebanken Vest, as it is to all entities in the banking industry. Corporate governance weaknesses can lead to a deterioration in a bank’s credit quality, while governance strengths can benefit its credit profile. Governance risks are largely internal rather than externally driven. For Sparebanken Vest, we do not have any particular governance concern. Nonetheless, corporate governance remains a key credit consideration and requires ongoing monitoring. Support and structural considerations Loss Given Failure (LGF) analysis The European Union's BRRD has been transposed into Norwegian law, applicable from 1 January 2019, which confirmed our current assumptions regarding the LGF analysis. We assume residual tangible common equity of 3% and post-failure losses of 8% of tangible banking assets, a 25% runoff in junior wholesale deposits and a 5% runoff in preferred deposits. We assign a 25% probability to deposits being preferred to senior unsecured debt. These metrics are in line with our standard assumptions.

Our Advanced LGF analysis includes a forward-looking approach on the bank's near-term bail-in-able debt issuance and indicates a very low loss given failure for junior depositors and senior unsecured creditors, resulting in a three-notch uplift in the relevant ratings from the bank's baa1 Adjusted BCA.

The assigned LGF notchings for long-term deposit and senior unsecured bank debt are positioned one notch higher than the corresponding LGF notching guidance. This reflects our expectation that Sparebanken Vest will issue non-preferred senior debt estimated at more than NOK10 billion until the end of 2023 (extended by one year recently by the FSA) to comply with Norwegian MREL requirements.

For junior securities issued by Sparebanken Vest, our LGF analysis confirms a high loss given failure, given the small volume of debt and limited protection from more subordinated instruments and residual equity. We also incorporate additional notching for junior subordinated instruments, reflecting the coupon suspension risk ahead of a potential failure.

Government support Sparebanken Vest is one of the largest regional savings banks in Norway in terms of total assets, and it benefits from a sound market position in Western Norway, in counties such as Hordaland, Sogn og Fjordane and Rogaland. We calculate that Sparebanken Vest's lending market share is around 21% in Hordaland, where the bank conducts most of its business.

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Following the implementation of the BRRD law in Norway on 1 January 2019, we assume a low probability of government support to low for the bank's senior debt and deposits, resulting in no rating uplift. For junior securities, we continue to believe that the probability of government support is low and these ratings do not include any related uplift.

Counterparty Risk (CR) Assessment CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than the likelihood of default and the expected financial loss suffered in the event of default, and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (for example, swaps), letters of credit, guarantees and liquidity facilities.

Sparebanken Vest's CR Assessment is A1(cr) for the long term and P-1(cr) for the short term The bank's CR Assessment is positioned at A1(cr)/Prime-1(cr), three notches above the bank's Adjusted BCA of baa1, based on the substantial buffer against default provided to the senior obligations represented by the CR Assessment by subordinated instruments. The main difference with our Advanced LGF approach used to determine instrument ratings is that the CR Assessment captures the probability of default on certain senior obligations, rather than expected loss. Therefore, we focus purely on subordination and take no account of the volume of the instrument class.

Counterparty Risk Ratings (CRRs) CRRs are opinions of the ability of entities to honour the uncollateralised portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honoured. CRR liabilities typically relate to transactions with unrelated parties. CRRs are distinct from ratings assigned to senior unsecured debt instruments and from issuer ratings because they reflect that, in the event of a resolution, CRR liabilities might benefit from preferential treatment compared with senior unsecured debt. Examples of CRR liabilities include the uncollateralised portion of payables arising from derivative transactions and the uncollateralised portion of liabilities under sale and repurchase agreements.

Sparebanken Vest's CRRs are positioned at A1/P-1 The bank's CRRs are positioned three notches above the bank's BCA of baa1, reflecting the extremely low loss given failure from the high volume of instruments that are subordinated to CRR liabilities. The bank's CRRs do not benefit from any rating uplift because of government support, in line with our assumptions for the senior debt and deposits.

9 17 July 2020 Sparebanken Vest: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Rating methodology and scorecard factors

Exhibit 6 Sparebanken Vest Macro Factors Weighted Macro Profile Very 100% Strong -

Factor Historic Initial Expected Assigned Score Key driver #1 Key driver #2 Ratio Score Trend Solvency Asset Risk Problem Loans / Gross Loans 0.8% aa2 ↓ a3 Geographical Sector concentration concentration Capital Tangible Common Equity / Risk Weighted Assets 18.0% aa1 ←→ aa2 Access to capital (Basel III - transitional phase-in) Profitability Net Income / Tangible Assets 0.6% baa2 ←→ baa3 Earnings quality Combined Solvency Score aa3 a2 Liquidity Funding Structure Market Funds / Tangible Banking Assets 29.1% baa2 ←→ baa2 Liquid Resources Liquid Banking Assets / Tangible Banking Assets 10.5% baa3 ←→ baa3 Combined Liquidity Score baa2 baa2 Financial Profile a3 Qualitative Adjustments Adjustment Business Diversification 0 Opacity and Complexity 0 Corporate Behavior 0 Total Qualitative Adjustments 0 Sovereign or Affiliate constraint Aaa BCA Scorecard-indicated Outcome - Range a2 - baa1 Assigned BCA baa1 Affiliate Support notching 0 Adjusted BCA baa1

Balance Sheet in-scope % in-scope at-failure % at-failure (NOK Million) (NOK Million) Other liabilities 110,525 50.5% 118,768 54.3% Deposits 80,809 36.9% 72,566 33.2% Preferred deposits 59,799 27.3% 56,809 26.0% Junior deposits 21,010 9.6% 15,758 7.2% Senior unsecured bank debt 17,807 8.1% 17,807 8.1% Dated subordinated bank debt 1,981 0.9% 1,981 0.9% Preference shares (bank) 1,205 0.6% 1,205 0.6% Equity 6,567 3.0% 6,567 3.0% Total Tangible Banking Assets 218,894 100.0% 218,894 100.0%

10 17 July 2020 Sparebanken Vest: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Debt Class De Jure waterfall De Facto waterfall Notching LGF Assigned AdditionalPreliminary Instrument Sub- Instrument Sub- De Jure De Facto Notching LGF Notching Rating volume + ordination volume + ordination Guidance notching Assessment subordination subordination vs. Adjusted BCA Counterparty Risk Rating 19.8% 19.8% 19.8% 19.8% 3 3 3 3 0 a1 Counterparty Risk Assessment 19.8% 19.8% 19.8% 19.8% 3 3 3 3 0 a1 (cr) Deposits 19.8% 4.5% 19.8% 12.6% 2 3 2 3 0 a1 Senior unsecured bank debt 19.8% 4.5% 12.6% 4.5% 2 1 2 3 0 a1 Dated subordinated bank debt 4.5% 3.6% 4.5% 3.6% -1 -1 -1 -1 0 baa2 Junior subordinated bank debt 3.6% 3.6% 3.6% 3.6% -1 -1 -1 -1 -1 baa3

Instrument Class Loss Given Additional Preliminary Rating Government Local Currency Foreign Failure notching notching Assessment Support notching Rating Currency Rating Counterparty Risk Rating 3 0 a1 0 A1 A1 Counterparty Risk Assessment 3 0 a1 (cr) 0 A1(cr) Deposits 3 0 a1 0 A1 A1 Senior unsecured bank debt 3 0 a1 0 A1 Dated subordinated bank debt -1 0 baa2 0 (P)Baa2 Junior subordinated bank debt -1 -1 baa3 0 (P)Baa3 [1]Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information. Source: Moody’s Investors Service

Ratings

Exhibit 7 Category Moody's Rating SPAREBANKEN VEST Outlook Positive Counterparty Risk Rating A1/P-1 Bank Deposits A1/P-1 Baseline Credit Assessment baa1 Adjusted Baseline Credit Assessment baa1 Counterparty Risk Assessment A1(cr)/P-1(cr) Senior Unsecured A1 Subordinate MTN (P)Baa2 Jr Subordinate MTN (P)Baa3 Other Short Term (P)P-1 Source: Moody's Investors Service

11 17 July 2020 Sparebanken Vest: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

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12 17 July 2020 Sparebanken Vest: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

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13 17 July 2020 Sparebanken Vest: Update to credit analysis