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DNB Bank ASA 30 July 2018 Update to Credit Analysis

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DNB Bank ASA 30 July 2018 Update to Credit Analysis FINANCIAL INSTITUTIONS CREDIT OPINION DNB Bank ASA 30 July 2018 Update to credit analysis Update Summary We assign a baseline credit assessment (BCA) of a3 to DNB Bank ASA (DNB), an adjusted BCA of a3, a long-term deposit rating of Aa2 and senior unsecured debt rating of Aa2. We also assign a long- and short-term Counterparty Risk Assessment (CRA) of Aa1(cr)/ Prime-1(cr) and Counterparty Risk Rating (CRR) of Aa1/P-1 to the bank. The outlook on the RATINGS bank’s long-term senior ratings is negative. DNB Bank ASA Domicile Norway DNB's a3 baseline credit assessment (BCA) reflects the bank's strong capital and good level Long Term CRR Aa1 of profitability, balanced against weakening asset quality and high reliance on international Type LT Counterparty Risk capital markets, which renders the bank susceptible to investor sentiment. DNB's Aa2 long- Rating - Fgn Curr term deposits and senior unsecured debt ratings include a two-notch uplift resulting from Outlook Not Assigned Long Term Debt Aa2 our advanced Loss Given Failure (LGF) analysis, reflecting our view that the bank’s junior Type Senior Unsecured - Fgn depositors and senior creditors face a very low loss given failure. In addition, our assessment Curr of government support translates into a further two notch uplift included in these ratings. Outlook Negative Long Term Deposit Aa2 The negative outlook on DNB's senior unsecured debt and deposit ratings primarily reflects Type LT Bank Deposits - Fgn Curr the potential rating pressure from the upcoming implementation of BRRD in Norway which Outlook Negative will trigger a reassessment of our government support assumptions, and receding negative pressure on DNB's asset risk profile. Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Exhibit 1 Rating Scorecard - Key Financial Ratios as of 30 June 2018 DNB Bank ASA (BCA: a3) Median a3 rated peers 18% 40% Contacts 16% 35% 14% 30% Effie Tsotsani +44.20.7772.1712 12% 25% AVP-Analyst 10% 20% [email protected] 8% 15% 6% Malika Takhtayeva +44.20.7772.8662 4% 10% Associate Analyst 2% 1.5% 17.1% 0.9% 36.3% 33.4% 5% [email protected] 0% 0% Asset Risk: Capital: Profitability: Net Funding Structure: Liquid Resources: Liquid Jean-Francois +44.20.7772.5653 Problem Loans/ Tangible Common Income/ Tangible Market Funds/ Banking Assets/Tangible Tremblay Gross Loans Equity/Risk-Weighted Assets Tangible Banking Assets Banking Assets Assets Associate Managing Director [email protected] Solvency Factors (LHS) Liquidity Factors (RHS) Source: Moody's Financial Metrics Sean Marion +44.20.7772.1056 MD-Financial Institutions [email protected] CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 This document has been prepared for the use of Lene Bergwitz-Larsen and is protected by law. It may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS Credit strengths » As the leading bank in Norway, DNB has a solid banking franchise and status as the nation's flagship bank » Capital is high and leverage compares well with peers » DNB reports solid core earnings, and benefits from the relatively strong performance of the Norwegian economy » DNB's BCA is supported by its Very Strong- macro profile » Our advanced LGF analysis indicates a very low loss-given-failure for long-term deposit and senior unsecured debt ratings, resulting in a two-notch LGF uplift from the adjusted BCA Credit challenges » High dependence on market funding, somewhat mitigated by a solid deposit base and good access to local and international capital markets » Negative pressures on the asset risk profile of the bank, mostly related to challenges in the oil offshore portfolio Rating outlook DNB's deposit and debt ratings carry a negative outlook to reflect primarily the potential rating pressure from the upcoming implementation of BRRD in Norway, which will trigger a reassessment of our government support assumptions (please see press release for more details) despite receding pressure on DNB's fundamentals. Factors that could lead to an upgrade » 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. Factors that could lead to a downgrade » 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) the eventual passage of the official resolution law (BRRD) in Norway and revision of our government support assumptions. 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 30 July 2018 DNB Bank ASA: Update to credit analysis This document has been prepared for the use of Lene Bergwitz-Larsen and is protected by law. It may not be copied, transferred or disseminated unless authorized under a contract with Moody's or otherwise authorized in writing by Moody's. MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS Key indicators Exhibit 2 DNB Bank ASA (Consolidated Financials) [1] 6-182 12-172 12-162 12-152 12-142 CAGR/Avg.3 Total Assets (NOK billion) 2,404 2,264 2,235 2,173 2,191 2.74 Total Assets (EUR million) 252,576 230,559 246,219 226,032 241,453 1.34 Total Assets (USD million) 294,897 276,855 259,700 245,537 292,171 0.34 Tangible Common Equity (NOK billion) 176 191 178 173 143 6.24 Tangible Common Equity (EUR million) 18,483 19,437 19,567 17,964 15,722 4.74 Tangible Common Equity (USD million) 21,580 23,339 20,638 19,515 19,025 3.74 Problem Loans / Gross Loans (%) 1.5 1.7 2.4 1.5 1.9 1.85 Tangible Common Equity / Risk Weighted Assets (%) 17.1 18.8 17.1 16.3 13.7 16.66 Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 12.5 13.1 19.3 12.3 17.5 14.95 Net Interest Margin (%) 1.6 1.5 1.5 1.5 1.5 1.55 PPI / Average RWA (%) 2.4 2.6 2.6 3.0 2.6 2.76 Net Income / Tangible Assets (%) 0.9 0.8 0.7 1.0 0.9 0.95 Cost / Income Ratio (%) 44.9 44.1 42.7 39.6 42.3 42.75 Market Funds / Tangible Banking Assets (%) 36.3 35.2 35.4 34.9 37.6 35.95 Liquid Banking Assets / Tangible Banking Assets (%) 33.4 29.3 27.8 25.4 29.4 29.15 Gross Loans / Due to Customers (%) 150.3 157.4 159.2 161.2 153.4 156.35 [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 due to scale of reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latest accounting regime. [6] Simple average of Basel III periods presented Source: Moody's Financial Metrics Profile DNB Bank ASA (formerly DnB NOR Bank ASA) is a subsidiary of the Norwegian financial services group DNB ASA and part of the DNB Group. The group (including DNB ASA, DNB Asset Management Holding AS, DNB Livsforsikring AS and DNB Forsikring) offers a full range of financial services, including loans, savings, advisory services, insurance and pension products for retail and corporate customers. In this structure, the bank (DNB Bank) mainly provides products and services to four different segments: personal customers, small and medium enterprises, large corporates and international customers, and trading. As of 30 June 2018, DNB Bank ASA exhibited 2.1 million retail customers, 210 thousands corporate customers, 1.3 million internet bank users, 850 thousand mobile banking users, 1.2 million customer in life and pension insurance and 222 thousands in non-life insurance across Norway. Norway's largest asset management company with approximately 479 thousand mutual fund customers in Norway and 154 institutional clients in Norway and Sweden. Norway's largest investment bank. One of Norway's largest real estate broker. As of 30 June 2018, DNB Bank Group reported a consolidated asset base of NOK2.5 trillion (€308 billion). DNB Bank ASA was established by the merger of Den norske Bank ASA (established in 1990 following the merger of Bergen Bank and Den norske Creditbank) and Gjensidige NOR. The newly merged bank, DnB NOR Bank ASA, was registered in January 2004. The bank was renamed DNB Bank ASA in November 2011. Detailed credit considerations As the leading bank in Norway, DNB has a solid banking franchise and status as the nation's flagship bank DNB's sizeable domestic franchise is a key positive rating driver, supporting the bank's profitability and asset quality.
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