Sparebanken Vest. Regular update. Rating Scorecard- Key financial ratios. Capital: Tangible Common Equity/Risk-Weighted Assets

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1 CREDIT OPINION 11 December 17 Sparebanken Vest Regular update Update Summary Moody's assigns Sparebanken Vest a baseline credit assessment (BCA) of baa1 to Sparebanken Vest, and an A1 long-term deposit and senior unsecured debt rating. RATINGS Sparebanken Vest Domicile Norway Long Term Debt A1 Type Senior Unsecured - Fgn Curr Outlook Negative Long Term Deposit A1 Type LT Bank Deposits - Fgn Curr Outlook Negative Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Contact Nondas Nicolaides VP-Sr Credit Officer EMEA Banking Group nondas.nicolaides@moodys.com Sparebanken Vest's BCA of baa1 is supported by the bank's strong regional retail franchise, good capital metrics, strong asset quality and resilient earnings performance in 16 on the back of cost reduction and lower impairments. The bank s strong financial fundamentals comfortably positions its standalone credit profile at the current level, comparing favourably with similarly rated local and global peers. The ratings assigned to Sparebanken Vest also incorporate some of the elevated risks it faces by exposure to more volatile sectors, such as commercial real estate and construction. These exposures, together with its sizeable residential mortgages book, could leave the bank vulnerable to a potential material fall in property prices in Norway, a common feature among all Norwegian banks. Additional risks stem from the relatively high and increasing household debt burden in Norway. The bank's A1 deposit and senior unsecured debt ratings take into account our Loss Given Failure (LGF) analysis of the bank's liability structure. Sparebanken Vest benefits from a large volume of deposits and substantial layers of subordination, resulting in very low LGF and providing two notches of rating uplift from its BCA. In addition, the bank's A1 rating also incorporates one notch of rating uplift due to government support, although this is likely to be revised downwards following the implementation of BRRD in Norway (please see press release for more details). Louise Eklund Associate Analyst louise.eklund@moodys.com Exhibit 1 Jean-Francois Tremblay Associate Managing Director jean-francois.tremblay@moodys.com 18% 16% 14% 1% 1% 8% 6% 4% % % Solvency Factors Sparebanken Vest (BCA: baa1) Median baa1-rated banks 5% % 5% % 15% 1% 1.1% Asset Risk: Problem Loans/ Gross Loans 15.4% Capital: Tangible Common Equity/Risk-Weighted Assets Solvency Factors (LHS) Source: Moody's Banking Financial Metrics.7% Profitability: Net Income/ Tangible Assets.7% 1.9% Funding Structure: Market Funds/ Tangible Banking Assets Liquid Resources: Liquid Banking Assets/Tangible Banking Assets 5% % Liquidity Factors (RHS) Liquidity Factors Sean Marion Managing Director Financial Institutions sean.marion@moodys.com Rating Scorecard- Key financial ratios

2 Credit strengths» Sparebanken Vest's BCA is supported by its Very Strong- Macro Profile» Solid capital metrics to meet target and authorities' expectations» Relatively low impairments and strong underlying core earnings Credit challenges» High exposure to commercial real estate, construction and residential mortgages could leave the bank vulnerable to a material fall in property prices, although the loan book performance has been resilient so far» Reliance on market funding could adversely affect the bank s liquidity from fluctuations in investor sentiment Rating Outlook Sparebanken Vest's deposit and debt ratings carry a negative outlook to reflect the potential rating pressure from the upcoming implementation of BRRD in Norway, which will trigger a reassessment of our government support assumptions for all large savings banks, including Sparebanken Vest. Factors that could lead to an upgrade» Over time, upward rating pressure could develop if the bank demonstrates: (1) reduced exposure to more volatile sectors such as the real estate, construction and shipping ; () sustained strong asset quality with a low level of problem loans and credit impairments; and/or () strong earnings generation without an increase in its risk profile relative to peers, combined with an improved non-interest income. Factors that could lead to a downgrade» Future downward rating pressure would develop on Sparebanken Vest's ratings if: (1) the bank's problem loan ratio increases above our system-wide expectation of approximately %; () its profitability deteriorates from weakening income and high credit costs; () the bank fails to sustain its market position; and/or (4) the macroeconomic environment deteriorates more than currently anticipated, leading to a lower Macro Profile. Also, a reduction in the rating uplift as a result of our LGF analysis or a revision of our government support assumptions could lead to downward rating pressure. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 11 December 17

3 Key indicators Exhibit Sparebanken Vest (Consolidated Financials) [1] Total Assets (NOK billion) Total Assets (EUR million) Total Assets (USD million) Tangible Common Equity (NOK billion) Tangible Common Equity (EUR million) Tangible Common Equity (USD million) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross Loans / Due to Customers (%) CAGR/Avg ,89 1,15 1 1,4 1, ,6 18, ,99 1, ,65 17, ,87 1, ,74 19, , ,9 1, , [1] All figures and ratios are adjusted using Moody's standard adjustments [] Basel II; IFRS [] May include rounding differences due to scale of reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latest accounting regime. [6] Simple average of Basel II periods presented Source: Moody's Financial Metrics Profile Sparebanken Vest is a large regional bank that operates mainly in Western Norway. The bank provides a range of retail banking, corporate banking, treasury and estate agency services. These include financing, savings and investment products, advisory services and trading activities. The bank also distributes life and general insurance, and offers securities brokerage and leasing services through certain jointly owned companies of which it is the majority owner. As of September 17, the bank reported total assets of NOK168 billion ( 17.9 billion). Detailed credit considerations Sparebanken Vest's BCA is supported by its Very Strong- Macro Profile As a domestically oriented bank, Sparebanken Vest's Macro Profile is aligned with that of Norway at Very Strong-. Norwegian banks benefit from operating in an affluent and developed country with very high economic, institutional and government financial strength as well as low susceptibility to event risk. Norway has a diversified and growing economy, which demonstrates resilience to the ongoing weakness in the oil sector. The main risks to the system stem from a high level of household indebtedness and domestic banks' reliance on market funding. However, these risks are offset by the strength of households' ability to service debt, banks' adequate capitalisation and the relatively small size of the banking system compared to GDP. Solid capital metrics to meet target and authorities' expectations Concurrently, Sparebanken Vest's baseline credit assessment (BCA) of baa1 is supported by its solid capital position, with a common equity Tier 1 (CET1) ratio of 14.9% at end-september 17, in line with the 14.8% at end-september 16. The bank was able to meet its 14.5% CET1 target, which is also the level recommended by Norway s regulator (the FSA), at the end of the third quarter of 17 with a comfortable margin, mainly through retained earnings and limited growth in its risk-weighted assets. Sparebanken Vest has been increasing its capital base in recent years (see Exhibit ) in anticipation of higher FSA requirements and recommendations. At end-september 17, Sparbanken Vest s Tier 1 capital ratio was 16.4%. Moreover, we note that the bank raised more AT1 bonds in early February 17 of around NOK million, in addition to NOK5 million of Tier bonds, both of which were significantly oversubscribed and supports the bank s overall capital adequacy ratio that was 18.4% at end-september December 17

4 Exhibit Sparebanken Vest's capital position CET1 AT1 Supplementary Capital % 16.9% 18% 16% 14% 1% 17.% 15.% 1.9% Total Capital Adequacy Ratio 18.7% 18.6% 18.4% 18.% 18.4%.%.%.1%.1%.% 1.7% 1.6% 1.5% 1.5% 1.5% 17.4% 1.9% 1.8%.% 1.% 1.% 1.1% 1.7% 1.8% 14.1% 14.8% 14.9% 14.8% 14.7% 14.9% Dec5 Mar6 Jun6 Sep6 Dec6 Mar7 Jun7 Sep7 1.% 1% 8% 6% 1.% 4% % % Sep5 Source: Company reports and presentations In November 16, the FSA indicated to Sparebanken Vest as part of its Supervisory Review and Evaluation Process (SREP) that its Pillar capital requirement is set at 1.8%. The bank s current regulatory minimum CET1 ratio of 1.% will increase to 1.8% as of 1 December 17, reflecting the upcoming increase in the countercyclical capital buffer to % from 1.5%. It should be noted that these ratios take into account the 8% Basel I floor, while under the internal ratings based (IRB) approach the bank reports a CET1 ratio 4 basis points higher at 18.9% as of September 17. In addition, in early February 17 the bank got approval from the FSA to use the advanced IRB approach for its corporate portfolio as well, which could further support its capital metrics through the reduction of its RWAs. The bank reported a leverage ratio of 7.% at end-september 17, a 7 bps increase from the 6.6% reported at end-september 16. We note that the outcome of the bank's BCA scorecard exhibits relative resilience to potential deterioration in asset quality and earnings, which supports its BCA of baa1. However, we cap the bank s Capital Score at a1 to reflect the increasing regulatory capital requirements, which will lower the CET1 capital buffer that the bank will have going forward. High exposure to commercial real estate, construction and residential mortgages could leave the bank vulnerable to a material fall in property prices, although the loan book performance has been resilient so far Despite the challenges in the oil and gas sector, Norway's mainland economy has shown some resilience, while its flexible fiscal and monetary policies continue to support banks' operating environment. The bank's 16 asset quality performance was favourable showing lower non-performing loans (NPLs) and loan loss provisions, despite some exposure to the commercial real estate sector in the county of Rogaland, an area that witnessed increases in vacancy rates. The sale of a portfolio of problematic retail loans granted during -16 to Lindorff Capital in September 16 (the bank has not disclosed the actual amount of NPLs sold), contributed to the bank s improved asset quality in 16. Sparebanken Vest s sound asset quality was sustained in the nine months ending in September 17 with overall problem loans (including performing/ doubtful loans) at 1.6% of gross loans at end-september 17, in line with 1.% at end December-16 (see Exhibit 4). Around 8% of the bank s stock of NPLs relates to the corporate market, although corporate loans comprised around 4% of total gross loans at end-september 17, signifying the higher credit risk profile of these loans compared to loans granted to the retail market mainly in the form of mortgages. The bulk of corporate NPLs stemmed from the bank s oil-related shipping exposure, with overall international shipping loans (including performing loans) together with transport loans comprising around.4% of total gross loans at end-september December 17

5 Exhibit 4 Sparebanken Vest Problem Loans % Gross Loans and Cost of Risk evolution Cost of Risk (LLP/Gross Loans).5%.% Problem Loans/Gross Loans 1.6% 1.41% 1.1% 1.4% 1.11% 1.%.5% 1.7% 1.% 1.6% 1.% 1.%.%.8%.15%.9%.6%.5%.1%.4%.1%.5%.14%.6%.%.% 1 HY14 HY15 15 HY %.%.% Sep7 Source: Moody's Banking Financial Metrics The bank's credit costs of.6% of gross loans at end-september 17 are broadly in line with the.% at end-december 16. Credit costs consumed around 4.7% of profit before write-downs and tax in the nine months ending in September 17, up from.4% in the same period in 16, which largely reflects the sale of a portfolio of loans in default in the third quarter of 16. Provisioning coverage for problem loans, including general provisions, was at a comfortable 7.6% in September 17, limiting the downside risks to the bank s earnings and capital from its existing stock of NPLs. Despite the bank's limited commercial real-estate exposure in Rogaland, with loans in the areas of Forus and Kokstad comprising only around.7% of the total loan book, its overall exposure to the property market including construction was around 1% of total gross loans at end-september 17. We believe that this exposure, combined with the sizeable residential mortgage book (around 7% of total loans at end-september 17), could leave the bank vulnerable to a potential material property price decrease in Norway, a common feature among its local peers. Property prices in Norway, primarily in areas as Oslo, have appreciated rapidly in the past years, although the housing market has cooled down since the beginning of 17, largely owning to tighter lending regulation that came into effect in early 17. As a result, we make some negative adjustments in the bank s Asset Risk factor in our scorecard, to reflect the sector and geographical concentration as the bank s assets are confined within Western Norway, limiting its geographical diversification. That said, we note the strength of the bank's growing residential mortgages in the last few years, with around 94% of the book having a loan-to-value (LTV) of less than 7%, which continues to support its underlying core operations and earnings. Relatively low impairments and strong underlying core earnings during 17 Sparebanken Vest reported a decrease by around 15% in net profit for the nine months ending in 17, compared to the same period in 16, reflecting significant one-off gains in 16. We expect Sparebanken Vest's recurring performance to be sustained in the next 18 months, benefiting also from its restructuring project through a more efficient organisation and increased digital usage and services. Accordingly, Sparebanken Vest's reported return on equity (RoE) decreased to 11.% in the nine months ending in September 17 compared to 14.7% in the same period of 16 (see Exhibit 5). The bank s net interest margin of 1.49% in the nine months ending in September 17 was however in line with the 1.48% reported for the same period of 16, highlighting the bank s sound core profitability. Our assigned Profitability Score reflects our expectation of intense competition in the market, and the potential modest pressure on future earnings from compressed margins. In addition, the bank is unlikely to repeat the NOK1 million gains in 16 from financial instruments, which also included a non- recurring profit of NOK18 million in connection with its Visa shares December 17

6 Exhibit 5 Sparebanken Vest profitability metrics Return on Equity 16% 1.1% 1.7% Costs as % of Average Assets (RHS) 1.4% 1.% 1.% 14% 1.1% 1.% 1.6%.99% 1%.95% 1% 1.%.79%.85%.8% 8% 11.7% 11.% 4% % 1.7% 1.% 6%.6% 1.1% 11.% 11.%.4% 8.9% 8.% 4.8%.% %.% Jan-Sep 17 Source: Company reports and presentations Sparebanken Vest has actively established several product companies, enabling it to gain a foothold in life and non-life insurance (Frende Forsikring, 9.7% ownership), securities brokerage (Norne Securities, 47.6%), leasing (Brage Finans, 49.9%) and real-estate agency services (Eiendomsmegler Vest, 1%). The bank also owns 6% of Balder Betalning AS, which holds ownership stakes in the mobile phone payment system Vipps, and issues covered bonds to fund its operations through its wholly owned covered bond company Sparebanken Vest Boligkreditt AS. While these companies have performed well in 16 and 17 (NOK87 million profit contribution in the nine months ending in September 17 compared to NOK8 million in the same period of 16), we consider that these ownership stakes render the bank s earnings vulnerable to potential volatility in the companies' financial performance. The bank was able to maintain a low cost-to-income ratio of 4% in the first three quarters of 17, although slightly higher compared to the 6% reported in the same period of 16 (taking into account the above mentioned one-off gains). Sparebanken Vest has improved its efficiency in the last ten years (costs as a proportion of average assets under management reduced to.79% in 16 from 1.64% in 6), reflecting the efforts towards the rationalisation of the bank's operations (branches reduced to 5 in 16 from 71 in 11), with increased digital usage and improved processes. Reliance on market funding renders the bank vulnerable to fluctuations in investor sentiment Similar to its local peers, Sparebanken Vest has a relatively high dependence on capital market funding, which comprised around 5% of its total liabilities in September 17 including covered bonds. As a result, the bank s loans-to-deposits ratio was high at 11%, indicating the deposit shortage in the market (due to a high level of disintermediation) to adequately fund its loan book. However, we recognise the bank s strong ability and track record to raise debt instruments in the market at favourable rates. As reflected in our methodology, we take into account at a global level the relative stability of covered bonds compared to unsecured market funding through a standard adjustment in our Scorecard. Our assigned Funding Structure Score indicates that the overall funding profile remains a modest fundamental weakness for Sparebanken Vest because of inherent confidence sensitivity of the wholesale markets, and the potential for the availability and cost of market-based funding. This weakness is partially mitigated by good access to capital markets, including the Norwegian covered bond market; the bulk of the bank's outstanding debt consists of Norwegian krone- and euro-denominated covered bonds. Sparebanken Vest maintains a liquidity portfolio to cover short-term liquidity risks; at end-september 17, liquid assets accounted for around 1% of total banking assets, which is in line with the Norwegian banking average. The liquidity portfolio was primarily invested in covered bonds and other investment grade rated bonds, with a Liquidity Coverage Ratio (LCR) of 17% at end-september 17, above the regulatory requirement of 8% that came into force on 1 January 17. We note positively the fact that around 64% of the bank s deposits come from the retail sector, which we consider as a more stable funding source December 17

7 Support and structural considerations Loss Given Failure We expect that Norway will shortly pass the recently proposed legislation to cover the EU's Bank Recovery and Resolution Directive (BRRD), which confirms our current assumptions regarding LGF analysis. We assume residual tangible common equity of % and losses post-failure of 8% of tangible banking assets, a 5% run-off in junior wholesale deposits, a 5% run-off in preferred deposits, and assign a 5% probability to deposits being preferred to senior unsecured debt. These metrics are in line with our standard assumptions. Sparebanken Vest's long-term deposit rating and senior unsecured ratings take into consideration the likely impact on loss-given-failure of the combination of the bank's own volume of debt and deposits and the amount of debt subordinated to them. This has resulted in a Preliminary Rating Assessment of two notches above the BCA, reflecting very low loss-given-failure. For junior securities issued by Sparebanken Vest, our LGF analysis confirms a high loss-given-failure, given the small volume of debt and limited protection from more subordinated instruments and residual equity. We also incorporate additional notching for junior subordinated instruments reflecting the coupon features. Government Support Sparebanken Vest is the second-largest regional savings bank in Norway by total assets, and benefits from a sound market position in western Norway, in counties such as Hordaland, Sogn og Fjordane and Rogaland. We calculate that Sparebanken Vest's lending market share is around 1% in Hordaland where the bank does most of its business. We therefore expect a moderate probability of government support for senior debt and deposits, resulting in one notch of rating uplift. However, the expected implementation of an official resolution regime in Norway in the coming months, might cause us to reconsider/ lower our government support assumptions for all rated savings banks in Norway, including Sparebanken Vest. For junior securities, we continue to believe that the probability of government support is low and these ratings do not include any related uplift. Junior securities also include additional downward notching from the BCA reflecting coupon suspension risk ahead of a potential failure. Counterparty Risk Assessment We assign a Aa(cr) long-term and P(cr) short-term CR assessment to Sparebanken Vest. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than the likelihood of default and the expected financial loss suffered in the event of default and () apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities December 17

8 Rating methodology and scorecard factors Exhibit 6 Sparebanken Vest Macro Factors Weighted Macro Profile Very Strong - Factor Solvency Asset Risk Problem Loans / Gross Loans Historic Macro Ratio Adjusted Score Credit Trend Assigned Score Key driver #1 Key driver # Sector concentration 1.1% aa a Geographical concentration Capital TCE / RWA 15.4% aa a1 Risk-weighted capitalisation Profitability Net Income / Tangible Assets.7% baa Expected trend Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets.7% Market funding quality Liquid Resources Liquid Banking Assets / Tangible Banking Assets a1 a 1.9% Stock of liquid assets Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA Balance Sheet in-scope (NOK million) 75,67 68,744 5,871 17,87 15,948, ,4 168,88 Other liabilities Deposits Preferred deposits Junior Deposits Senior unsecured bank debt Dated subordinated bank debt Junior subordinated bank debt Equity Total Tangible Banking Assets 8 1% 11 December 17 baa1 Aaa a-baa baa1 baa1 % in-scope 45.% 4.9%.% 1.6% 9.5% 1.%.%.% 1% at-failure (NOK million) 8,685 61,7 48,7 1,45 15,948, ,4 168,88 % at-failure 49.% 6.7% 8.8% 8.% 9.5% 1.%.%.% 1%

9 Debt class Counterparty Risk Assessment Deposits Senior unsecured bank debt Dated subordinated bank debt Junior subordinated bank debt Instrument class Counterparty Risk Assessment Deposits Senior unsecured bank debt Dated subordinated bank debt Junior subordinated bank debt De Jure waterfall De Facto waterfall Notching LGF Assigned Additional Preliminary LGF notching Rating Instrument Sub- Instrument SubDe Jure De Facto Notching Guidance notching Assessment volume + ordination volume + ordination vs. subordination subordination Adjusted BCA.1%.1%.1%.1% a1 (cr).1% 4.6%.1% 14.1% a.1% 4.6% 14.1% 4.6% 1 a 4.6%.% 4.6%.% baa.%.%.%.% Loss Given Failure notching Additional Preliminary Rating Assessment Notching a1 (cr) a a baa Government Support notching Local Currency Rating Aa (cr) A Foreign Currency Rating -A1 A1 (P)Baa (P)Baa Source: Moody's Financial Metrics Ratings Exhibit 7 Category SPAREBANKEN VEST Outlook Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Senior Unsecured Subordinate MTN Jr Subordinate MTN Other Short Term Moody's Rating Negative A1/P baa1 baa1 Aa(cr)/P(cr) A1 (P)Baa (P)Baa (P)P Source: Moody's Investors Service 9 11 December 17

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11 Contact Nondas Nicolaides VP-Sr Credit Officer EMEA Banking Group December 17 Louise Eklund +46.() Associate Analyst