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DNB Bank ASA 10 December 2019 Update to Credit Analysis

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DNB Bank ASA 10 December 2019 Update to Credit Analysis FINANCIAL INSTITUTIONS CREDIT OPINION DNB Bank ASA 10 December 2019 Update to credit analysis Update Summary We assign a baseline credit assessment (BCA) of a3 and long-term deposit and senior unsecured debt ratings of Aa2 to DNB Bank ASA (DNB). The outlook on the bank’s long-term senior ratings is stable. DNB's a3 BCA reflects the bank's strong capital and good level of profitability, balanced RATINGS against negative, albeit receding, pressures on asset quality and high reliance on international DNB Bank ASA Domicile Norway capital markets, which renders the bank susceptible to investor sentiment. Our forward- Long Term CRR Aa2 looking loss given failure (LGF) analysis results in three notches of rating uplift from DNB's Type LT Counterparty Risk adjusted BCA, and our assessment of government support translates into a further one notch Rating - Fgn Curr uplift, resulting in Aa2 long-term deposit and senior unsecured debt ratings. Outlook Not Assigned Long Term Debt Aa2 Type Senior Unsecured - Fgn Exhibit 1 Curr Rating Scorecard - Key Financial Ratios as of 30 September 2019 Outlook Stable DNB Bank ASA (BCA: a3) Median a3-rated banks Long Term Deposit Aa2 20% 40% Type LT Bank Deposits - Fgn 18% 35% Curr 16% 30% FactorsLiquidity Outlook Stable 14% 12% 25% 10% 20% Please see the ratings section at the end of this report for more information. The ratings and outlook shown 8% 15% reflect information as of the publication date. 6% SolvencyFactors 10% 4% 5% 2% 1.9% 18.4% 36.0% 24.8% 0% 0.8% 0% Asset Risk: Capital: Profitability: Funding Structure: Liquid Resources: Contacts Problem Loans/ Tangible Common Net Income/ Market Funds/ Liquid Banking Gross Loans Equity/Risk-Weighted Tangible Assets Tangible Banking Assets/Tangible Roland Auquier +33.1.5330.3341 Assets Assets Banking Assets AVP-Analyst Solvency Factors (LHS) Liquidity Factors (RHS) [email protected] Source: Moody's Financial Metrics Malika Takhtayeva +44.20.7772.8662 Associate Analyst [email protected] Simon Ainsworth +44 207 772 5347 Associate Managing Director [email protected] Sean Marion +44.20.7772.1056 MD-Financial Institutions [email protected] This document has been prepared for the use of Roar Sorensen 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 » Strong and stable domestic franchise » Capital is high and leverage compares well with Nordic and European peers » Solid core earnings, benefiting from the relatively strong performance of the Norwegian economy Credit challenges » High dependence on market funding, mitigated by a solid deposit base and good access to local and international capital markets » Negative, albeit receding, pressures on the asset risk profile of the bank, mostly related to challenges in the oil offshore portfolio Rating outlook The outlook on DNB Bank ASA's deposit and senior debt ratings is stable, as we expect that the profitable lending growth generated by the bank's domestic franchise, combined with its high capital levels, will remain consistent with a BCA of a3. The stable outlook also reflects our expectations that DNB will issue additional loss-absorbing instruments over the outlook period, mainly in the form of non- preferred senior (NPS) debt, supporting the LGF notching embedded in the Aa2 ratings. Factors that could lead to an upgrade 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. Factors that could lead to a downgrade 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. Downward 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. 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 10 December 2019 DNB Bank ASA: Update to credit analysis This document has been prepared for the use of Roar Sorensen 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] 09-192 12-182 12-172 12-162 12-152 CAGR/Avg.3 Total Assets (NOK Billion) 2,491.9 2,220.1 2,264.5 2,235.4 2,173.3 3.74 Total Assets (USD Million) 274,260.9 256,382.9 276,854.6 259,700.0 245,537.2 3.04 Tangible Common Equity (NOK Billion) 193.6 188.0 183.8 177.6 172.7 3.14 Tangible Common Equity (USD Million) 21,302.9 21,710.8 22,467.6 20,638.1 19,514.7 2.44 Problem Loans / Gross Loans (%) 1.6 1.8 1.8 2.6 1.6 1.95 Tangible Common Equity / Risk Weighted Assets (%) 18.4 17.9 18.1 17.1 16.3 17.66 Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 13.2 14.1 13.6 19.3 12.3 14.55 Net Interest Margin (%) 1.6 1.6 1.5 1.5 1.5 1.65 PPI / Average RWA (%) 2.8 2.5 2.6 2.6 3.0 2.76 Net Income / Tangible Assets (%) 0.9 0.9 0.8 0.7 1.0 0.95 Cost / Income Ratio (%) 42.3 44.8 44.1 42.7 39.6 42.75 Market Funds / Tangible Banking Assets (%) 39.2 36.0 37.7 35.4 34.9 36.65 Liquid Banking Assets / Tangible Banking Assets (%) 28.9 24.8 29.3 27.8 25.4 27.35 Gross Loans / Due to Customers (%) 171.2 168.5 160.9 151.8 152.2 160.95 [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 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 Investors Service; Company Filings 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 September 2019, DNB Bank ASA exhibited 2.1 million retail customers, 223,000 corporate customers, 1.5 million internet bank users, 935,000 mobile banking users and 1.2 million customer in life and pension insurance companies in Norway. DNB is Norway's largest asset management company with approximately 478,000 mutual fund customers in Norway and 183 institutional clients in Norway and Sweden. DNB Markets is Norway's leading investment firm and offers investment banking services, including risk management, investment and financing products in the capital markets, to the Group's customers. As of 30 September 2019, DNB Bank Group reported a consolidated asset base of NOK2.5 trillion ($275 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 DNB's BCA is supported by its Very Strong- Macro Profile DNB Bank ASA's operating environment is primarily influenced by developments in its home market Norway, the EU and through its shipping exposures to the rest of the world. Norway, which accounted for 78% of customer loans at end-2017, carries a Very Strong- Macro Profile. Banks in Norway (Aaa stable) benefit from operating in a wealthy and developed country with very high economic, institutional and government financial strength as well as low susceptibility to event risk. Norway has a diversified and growing economy, which has demonstrated resilience to the weaknesses in the oil sector. The main risks to the system stem from the high level of household indebtedness, elevated real estate prices and domestic banks' extensive use of market funding. However, these risks are offset by 3 10 December 2019 DNB Bank ASA: Update to credit analysis This document has been prepared for the use of Roar Sorensen and is protected by law.
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