The credit outlook for
Key challenges include the fiercely competitive operating environment, as both banks and savings banks vie for retail lending and wealth management opportunities.
“The financial fundamentals of rated Norwegian banks continue to improve and in 2007 they have reported some of their best results ever, thanks largely to a focus on fee income and to good lending growth, which has somewhat alleviated the pressure on margins resulting from the intense competition, both among domestic players and with other Nordic banks,” said Janne Thomsen, a Moody’s Senior Vice President and author of the report.
Nonetheless, margin pressure is expected to remain significant as the banks gain access to the covered bond market and may be able to secure more advantageous funding.
The rated banks and savings banks continue to demonstrate a sound ability to contain costs, although they will be challenged by the Basel II-driven work on accounting and risk models and increasing reporting requirements to the supervisory authority.
Nevertheless, Moody’s notes that the regional and local banks that are members of the SpareBank 1 Alliance or Terra Group are continuing to benefit from the sharing development costs, which has already led to stronger benchmarking in areas such as credit assessment, product sales and back-office handling.
Asset quality at Norwegian banks has continued to improve but is still weaker than at their Nordic peers. Provisioning levels remain prudent generally given the good quality of collateral. The results of the banks and savings banks reflect these trends in continued write-backs and lower provisioning requirements. Other risks such as foreign exchange, equity and interest risk are limited. Although the rated Norwegian banks continue to improve their available liquidity both on their balance sheets and in the form of committed lines, Moody’s notes that available liquidity is still lower than at most other European banks.
“Looking ahead, the intense competition remains one of the key challenges, as banks and savings banks are following similar strategies to grow their retail lending as well as wealth management, where high structural growth opportunities have been identified. Cross-selling remains a focus and Moody’s views positively the efforts the banks are making in this respect,” said Thomsen.
In Moody’s judgment, the probability that the Norwegian authorities would support each of the rated deposit-taking banks in a period of financial distress ranges from moderate to very high given their strong national or regional presence. As a result, each of the banks receives a one- to three-notch uplift for its debt/deposit ratings from its respective baseline credit assessment.
