Norway SIFIs designation credit positive, regional surprise

The designation of DNB, Nordea Bank Norge and Kommunalbanken as systemically important financial institutions (SIFIs) by the Norwegian Ministry of Finance is credit positive, Moody’s said on Monday, noting that an FSA proposal to include regional players was not taken up.The three aforementioned institutions were designated SIFIs under a regulation adopted by the ministry on Tuesday of last week (13 May), whereby financial institutions are deemed systemically important if total assets account for at least 10% of mainland GDP and/or they have a market share of at least 5% of the Norwegian lending market, said the rating agency.

Moody’s noted that a proposal from the Norwegian FSA, Finanstilsynet, to include regionally important banks as SIFIs was not taken up and that regional criteria were excluded. The rating agency previously, in November 2013, commented that SIFI status would be credit positive for eight financial institutions that would have been designated SIFIs under the Finanstilsynet proposal, with those absent from the ultimate list being: SpareBank 1 Nord-Norge, SpareBank 1 SR-Bank, SpareBank 1 SMN, Sparebanken Vest, Sparebanken Sør and Sparebanken Pluss, the latter two of which have since merged.

“In our view, the recommendation from the FSA was in line with expectations, as the authorities have communicated on various occasions their belief that the regional savings bank model is important for the country’s financial stability,” said Julia Dulneva, associate analyst at Moody’s. “As such, the new regulation that designates three banks as SIFIs and excludes the regional criteria was not in line with our expectations.”

According to Moody’s, Norway already includes in its regulations a 2% capital buffer requirement for SIFIs, and Finanstilsynet will not, as is the case in Denmark, apply different buffers for each SIFI.

The Common Equity Tier 1 (CET1) ratio requirement for SIFIs will rise from 9% this year to at least 12% from 1 July 2016, also taking into account an increase in the systemic risk buffer from 2% to 3%. Moody’s noted the CET1 requirement could be higher depending on the level of a countercyclical capital buffer, which has been set at 1% effective July 2015 but will be reviewed quarterly and can range between 0% and 2.5%.

“The regulation is credit positive for three financial institutions that the ministry identified as SIFIs because it will increase their capital requirements through a separate capital buffer requirement, thereby ensuring capital retention,” it said.

Finanstilsynet has also proposed a 100% liquidity coverage requirement for SIFIs beginning on 1 July 2015, whereas non-SIFIs have a phasing-in of LCRs from 2015, added Moody’s.

Photo: Rune Kongsro/Ministry of Finance