Standard & Poor’s Ratings Services has raised its long-term counterparty credit rating on Norway-based DnB NOR Bank ASA to ‘A+’ from ‘A’. At the same time, Standard & Poor’s affirmed its ‘A-1’ short-term rating on DnB NOR. The outlook is stable.
“The upgrade reflects solid progress in the merger process between the former DnB Bank and Union Bank of Norway,” said Standard & Poor’s credit analyst Per Trnqvist. “This is reflected in improving earnings and steady progress in delivering expected cost synergies, while maintaining a sound risk profile and strong business position.” The upgrade also reflects the group’s stable asset quality and low provisioning level.
The merger is expected to produce cost savings, net of revenue losses, of Norwegian krone (Nkr) 1.86 billion, adjusted for reporting under International Financial Reporting Standards. At March 31, 2005, Nkr1.16 billion, or 62%, had been achieved. At the same time, 60% of the Nkr1.9 billion restructuring charge associated with this transaction had been utilized.
“The stable outlook reflects our expectation that the DnB NOR group will achieve cost synergies in line with its stated plans,” said Mr. Trnqvist. “Furthermore, we expect the group to be able to maintain asset quality over the medium term, and to successfully integrate IT systems.”
Continued margin pressure (particularly on retail mortgages) and the low interest rate environment will weigh negatively on earnings. However, this is expected to be offset by cost synergies, allowing core earnings to improve in 2005 and 2006.