SIFI status credit positive for eight Norwegians

Moody’s considers a framework for systemically important financial institutions (SIFIs) proposed by Norway’s Financial Supervisory Authority last week to be credit positive for eight financial institutions designated SIFIs.

The eight SIFIs identified by the FSA (Finanstilsynet) on Monday of last week (4 November), and their Moody’s ratings, are: DNB Bank (A1), Nordea Bank Norge (Aa3), SpareBank 1 Nord-Norge (A2), SpareBank 1 SR-Bank (A2), SpareBank 1 SMN (A2), Sparebanken Vest (A2), Sparebanken Sør (A3, on review for upgrade), and Sparebanken Pluss (A2, on review for downgrade).

According to Moody’s, the criteria used by the Norwegian FSA to determine SIFI designation include banks’ relative market share either overall or regionally and qualitative factors such as a bank’s role in financial infrastructure. Sparebanken Vest, for example, was designated a SIFI due to its regional importance. SpareBank 1 Boligkreditt was excluded from the list.

Moody’s noted that Norway has already included a 2% capital buffer requirement for SIFIs proposed under Basel III in its regulations and will not, as in Denmark, vary this for different banks according to their importance.

Under the FSA’s proposals, a 100% liquidity coverage requirement will apply to all SIFIs from 1 July 2015, whereas it will be phased in from 2015 for other financial institutions. Once the SIFI buffer and a systemic risk buffer are fully phased in, SIFIs will have a CET1 requirement of at least 12% versus 10% for others. The full CET1 requirement will vary depending on the level of the countercyclical buffer of between 0% and 2.5% (see chart).

“Finanstilsynet asserts that the SIFI banks will largely be able to meet the higher capital requirements at least up until 2016, as long as profitability remains sound,” said Moody’s. “We note that the average Tier 1 ratio for these SIFIs was 12.3% as of year-end 2012, below what the CET1 requirement could be if all buffers are introduced in full by January 2015.

“As a result, we expect to see profit retention and additional capital increases.”