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Moody's affirms DNB Bank's A1/C-/P-1 ratings

May 14, 2014



Moody's Investors Service has today affirmed the

ratings of DNB Bank ASA, with a stable outlook. DNB's strong performance

in recent years in terms of profitability, lower loan-loss provisions and

a stable problem loan ratio has confirmed Moody's view of the bank as a

strong European universal bank in a supportive operating environment,

with the strength to withstand challenges in the shipping industry, to

which the bank has sizable exposure. Specifically, Moody's has affirmed

the bank's A1/P-1 long and short-term debt and deposit ratings, C- bank

financial strength rating (BFSR), equivalent to a baseline credit

assessment (BCA) of baa1, the (P)Baa3 junior subordinated debt and

Ba1(hyb) non-cumulative preferred stock ratings. Moody's upgraded DNB's

subordinated debt rating to Baa2 (hyb) from Baa3 (hyb).

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

DNB retains its strong position in the Norwegian market, with a 30%

market share, and retains considerable ability to influence pricing

locally : in 2013, DNB was able to improve lending margins by 0.34

percentage points relative to 2012. Reflecting this, DNB's risk-weighted

pre-provision profitability improved to 2.3% in 2013 from 2.0% in 2012,

and is now in line with the average for similarly rated global peers.

Taking into account reduced provisioning, net profitability reached

1.6%. During 2013, DNB's loan-loss provisions fell by more than 30%

compared to 2012, mainly driven by lower provisions within shipping, the

Baltics and Poland. We expect overall loan-loss provisions to remain low

compared with those of its European peers, reflecting the relatively

strong Norwegian macroeconomic environment, although with persistent

challenges in the shipping sector.

DNB's exposures to more volatile sectors, including shipping and

commercial real estate, remain sizeable. However, while the bank's

problem loan ratio has been at historically high levels since 2009, it

has been stable (2.25% at year-end 2013), and the bank's latest reported

problem loan ratio indicates an improvement (1.9% at end-March 2014). In

addition, Moody's positively notes DNB's reduction in exposure to

traditional shipping, which has seen more volatile performance, targeting

6% of exposures at default by 2015.

DNB's reliance on market funding is high compared to European peers. This

is mitigated by strong capital markets access, domestic as well as

international, and use of the covered bond market. Also, DNB benefits

from a comfortable liquidity position, underpinned by a lengthened

average debt maturity (4.3 years in 2013 vs. 2.4 years in 2008 according

to DNB's calculations) and a strong liquidity buffer. DNB's Tier 1

capital ratio, including the transitional floor, was 12% at end-March

2014. In order to build capital buffers organically in recognition of

the introduction of Basel III capital requirements, DNB has temporarily

reduced its dividend payout ratio to 25%, compared to its long term

target of 50%.


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Source: EMBIN (Emerging Markets Business Information News)


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