Fitch: Norway Saving Banks' Good Results Shrug Off Oil Pressure

Rogaland Sparebank

09/02/2016 15:15

(The following statement was released by the rating agency)

LONDON, February 09 (Fitch) Low oil prices are affecting growth and regional 
unemployment rates in Norway, but the country's savings banks, the Sparebanken, 
appear to be shrugging off the challenges and reported solid results for 2015, 
says Fitch Ratings. 

Weak oil prices heighten economic uncertainty in Norway. The fallout has been 
limited so far but a protracted period of low prices could have a major negative 
effect on Norway's mainland, non-oil, economy. 

The Sparebanken are not immune: direct oil and gas lending make up 4%-6% of 
their gross loans, and loans to offshore service vessels - where prices have 
slumped - represent between 1% and 5%. Lending to these companies is likely to 
suffer additional impairments in 2016 as oil companies strive to reduce costs, 
and service vessels' contracts come up for renewal. The early stages of the 
value chain - such as oil production and exploration - are likely to be the 
first hit by a decline in oil investments, but the Sparebanken's exposure to 
these segments are low. 

The common equity Tier 1 (CET1) ratios of the four rated Sparebanken were all 
above 13% at end-2015, in line with similarly 'A'/'A-' rated European peers. We 
expect the banks to keep dividend payouts low to reach their CET1 targets of 
14%-14.5% by 2016-2017. 

Norwegian banks are subject to rigorous regulatory stress tests. The central 
bank's adverse scenarios for 2016 and 2017 assume annual economic contraction of 
around 2.5% and oil prices hovering at USD30/barrel, with recovery to over 
USD40/barrel only in 2019. Banking sector CET1 ratios hold up at above 10% in 
these scenarios, which we think demonstrates reasonably strong capacity to 
absorb unexpected losses. 

The four rated Sparebanken reported return on equity ratios above 10% in 2015, 
which we view positively due to their solid Tier 1 leverage ratios (6% to 7% at 
end-2015). Operating expenses declined for most of them, primarily due to lower 
staff costs and greater efficiency focus. 

Loan impairment charges (LICs) rose for some banks in 2H15, mostly due to 
oil-related collective reserving, these were easily absorbed. We expect LICs to 
increase in 2016, reflecting oil and gas sector fallout and a spillover effect 
on the housing market, particularly in southwest Norway, and local service 
companies, but believe this too will be manageable for the banks. 

Additional information on the Sparebanken is contained in our report "The Major 
Sparebanken of the SpareBank 1 Alliance", available by clicking on the link 
below. 

Click here to related research, "The Major Sparebanken of the SpareBank 1 
Alliance". /a 

  

Contact: 

Bjorn Norrman

Director, Banks  

+44 203 530 1330

Fitch Ratings Limited

30 North Colonnade

London

E14 5GN

Bogdan Porumb 

Associate Director, Banks

+44 203 530 1453

Janine Dow 

Senior Director, Fitch Wire

+44 20 3530 1464

Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: 
elaine.bailey@fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market 
commentary page. The original article can be accessed at www.fitchratings.com. 
All opinions expressed are those of Fitch Ratings.

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