Scope Ratings today has assigned long-term ratings of A+ and a short-term rating of S-1 to DNB Bank, all with stable outlooks. According to Scope, the ratings reflect DNB’s strong franchise as the leading financial services provider in a relatively concentrated and economically robust market. This enables the Group to generate resilient earnings and to maintain a strong capital position. The ratings also take into consideration the Group’s significant exposure to the Norwegian real estate market as well as its extensive use of market funding.

Scope pointed out that the Norwegian government’s 34% ownership stake in DNB is not a rating driver and that a disposal of the government’s stake would not in and of itself impact DNB’s ratings negatively. The Group is financially strong and in line with its bank rating methodology Scope does not notch up the rating based on the expectation of implicit state support. The agency considers potential state-bailout scenarios to be very unlikely as European Union banking systems move towards a resolution and recovery framework which includes creditor bailin. Scope does, however, recognize that Norwegian regulators remain diligent about risks in the banking system, requiring banks to meet relatively more stringent capital and liquidity requirements. In fact, the agency considers this to be a positive rating driver for DNB.

In its research on DNB, Scope notes that the bank enjoys a dominant position in Norway, accounting for about a third of the market. DNB is primarily a domestic universal bank with limited international operations in the Baltics but is also a leading global player in financing the shipping, energy and seafood sectors. Since recovering from the Norwegian banking crisis of the late 1980s-early 1990s, DNB has been solidly profitable, with returns not dropping below 9% even at the peak of the more recent financial crisis in 2009. Through retained earnings, the bank continues to strengthen its capital position. At 3Q 2014, DNB’s CET1 ratio was 12.6% limited by the Basel 1 transitional floor which requires RWAs to be a minimum of 80% of risk-weighted volume under Basel 1 regulations.

Like other Nordic banks, the bank has a substantial reliance on market funding. During the financial crisis, DNB and other Norwegian banks experienced higher funding costs and reduced access to long-term funding. At times, DNB only had access to short-term funding. The Group’s funding profile has since improved with the share of wholesale funding declining and the maturity profile of long-term funding extended, helped by the introduction of covered bonds in 2007. Management aims to maintain a customer deposit to net loan ratio of at least 60%.

As a positive rating-change driver, Scope mentions continued improvement in the funding profile. Meanwhile, negative rating-change drivers include a significant disruption to capital markets access and a material deterioration in the macro environment such as a sizeable correction in the Norwegian housing market accompanied by a substantial downturn in the Norwegian economy. Concerns remain about house price valuations and the high level of personal indebtedness. As well, the Norwegian economy is reliant on the oil and gas industry which accounts for about half of exports. Notably, there has been some recent weakness in oil prices.

Both the rating drivers and the rating-change drivers are detailed in Scope’s research on DNB which supports the ratings.

The following ratings were assigned to DNB Bank, all with stable outlooks:

- Issuer Credit-Strength Rating (ICSR) of A+. The ICSR represents a credit opinion on a bank’s ability to meet its contractual financial commitments on a timely basis and in full while remaining a going concern.
- Senior unsecured debt rating of A+.
- Short-term debt rating of S-1.

The ratings assigned to DNB Bank are (i) based on public information, (ii) not solicited by the issuer and (iii) without issuer participation in the process.

The methodology used for the rating assessment is “Bank Rating Methodology” published in February 2014. The methodology used for the financial forecasts of the rating analysis is “Forecasting Bank Financials” published also in February 2014. These methodologies are available on www.scoperatings.com.