Luminor Bank AS (Estonia)

Transcription

1 CREDIT OPINION 26 September 28 Luminor Bank AS (Estonia) New issuer - Luminor is assigned Baa Deposit ratings New Issue Summary Moody's has assigned first time long- and short-term, foreign and local currency deposit ratings of Baa/Prime-2, as well as a local currency long-term (P)Baa2 senior MTN rating to Luminor Bank AS (Estonia) (Luminor Estonia). Furthermore the bank was assigned a baseline credit assessment (BCA) of ba, an adjusted BCA of ba, along with a counterparty risk assessment of A(cr)/Prime-2(cr) and counterparty risk ratings of A/Prime-2. RATINGS Luminor Bank AS (Estonia) Domicile Estonia Long Term CRR A Type LT Counterparty Risk Rating - Fgn Curr Outlook Not Assigned Long Term Debt (P)Baa2 Type Senior Unsecured MTN - Dom Curr Outlook Not Assigned Long Term Deposit Baa Type LT Bank Deposits - Fgn Curr Outlook Stable 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. The deposit ratings incorporate the () the standalone BCA of ba, reflecting strong capitalisation, moderate asset risk due to its Baltic footprint, profitability initially challenged by merger costs, and an evolving funding structure; (2) the substantial amounts of junior depositors, and expected issuances of senior obligations absorbing losses in case of failure, which results in two notches of uplift; () a moderate probability of government support resulting in one additional notch of uplift. The senior unsecured ratings incorporate () the BCA of ba, (2) one additional notch due to the expected issuances of senior unsecured debt, providing a cushion of loss absorption to creditors, as indicated by the LGF analysis and () a moderate probability of systemic support, providing one additional notch of uplift. Exhibit Rating Scorecard - Key financial ratios of Luminor Bank on an aggregated level including operations in Estonia, Latvia and Lithuania Luminor Bank (BCA: ba) Median ba-rated banks 8% Analyst Contacts 5% 6% Niclas Boheman AVP-Analyst niclas.boheman@moodys.com Jean-Francois Tremblay Associate Managing Director jean-francois.tremblay@moodys.com Sean Marion MD-Financial Institutions sean.marion@moodys.com Savina R Joseph Associate Analyst savina.joseph@moodys.com Effie Tsotsani AVP-Analyst effie.tsotsani@moodys.com» Contacts continued on last page CLIENT SERVICES Americas Asia Pacific % 4% 25% 2% % 2% 8% 5% 6% % 4% 2% 5% 6.4% 8.% % 2.7% 2.8% %.6% Asset Risk: Problem Loans/ Gross Loans Capital: Tangible Common Equity/Risk-Weighted Assets Solvency Factors (LHS) Profitability: Net Income/ Tangible Assets Funding Structure: Liquid Resources: Liquid Market Funds/ Banking Assets/Tangible Tangible Banking Assets Banking Assets Liquidity Factors (RHS) The bank's problem loan and profitability ratios are the weaker out of the average of the latest three year-end ratios or the latest reported ratio. The capital ratio is the latest reported figure. The funding structure and liquid asset ratios are the latest year-end figures. The metrics shown reflect the aggregate metrics for the three Baltic banks, Moody's own calculations Source: Moody's Investors Service

2 The ratings reflect the assessment of the consolidated Baltic operations, aggregating the three banks: Luminor Bank AS (Estonia), Luminor Bank AS (Latvia), and Luminor Bank AB (Lithuania). Due to the ongoing merger of the three Luminor banks, with the Latvian and Lithuanian banks expected to become branches of the Estonian bank on January 2, 29, the credit profile is evolving. However, due to the high probability of the success of the merger, the interlinkages between the three banks, and the relatively short period of time until it is expected to be finalized, the recommendation is to let the ratings reflect our forward looking credit assessment of the bank as a consolidated entity. Credit strengths» Strong capitalization» Committed facilities from highly rated owners enable the bank to develop its funding profile with limited risks» Rapid establishment of the Luminor brand in the Baltics as a large domestic bank, with the potential to attract new customers» Expected issuances of senior debt will add to the cushion of loss absorbing obligations Credit challenges» Moderate profitability affected by the merger process of the DNB Bank ASA and Nordea Bank AB's Baltic operations, but clear strategy to reduce cost base will lead to gradual improvements» A legacy portfolio of problem loans, but supportive operating environment will enable continued reduction of legacy assets Rating outlook The outlook on the long-term deposit ratings is stable, reflecting Moody s expectation that the bank s funding profile and profitability will improve gradually during the next 2 to 8 months and that the bank will issue senior debt in line with the assumptions in the loss given failure analysis. Factors that could lead to an upgrade» Lower levels of problem loans in combination with a careful underwriting standards, not expanding into more risky segments or products; and» Higher recurring profitability; and» Increased volumes of deposits.» Furthermore, higher than expected issuances of senior unsecured debt could give additional cushion of loss absorption in case of failure and thereby additional uplift according to the Loss Given Failure (LGF) analysis. Factors that could lead to a downgrade» Higher levels of problem loans, higher than anticipated growth in lending or entry into higher risk segments; or» Lower recurring profitability; or» A worsened liquidity position or failure to access market funding.; or» Lower issuances of senior unsecured debt than anticipated by Moody s, reducing the cushion of loss absorbing liabilities protecting creditors and depositors in case of failure.» Lower assumptions of government support would lead to a downgrade of senior, deposit and counterparty risk ratings. 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 September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

3 Profile Luminor is the result of the merged Baltic operations of Nordea Bank AB (Aa/Aa stable, a) (Nordea) and DNB Bank ASA (Aa2/Aa2 negative, a) (DNB), completed in October 27. Following the approval by the European Central Bank (ECB) granted on 28 June 28, Luminor Estonia, Luminor Lithuania and Luminor Latvia (herein referred to as the Luminor banks ) will proceed with the cross-border merger in the Baltics, with a completion target date of 2 January 29. The merger will see the Estonian entity (herein referred to as the Luminor Estonia ) being the surviving parent bank of the group, while the Latvian and Lithuanian entities will convert into branches. Currently the Luminor Banks are owned directly by DNB and Nordea s joint venture under the name of Luminor Group AB (Sweden). On September, Luminor announced that a consortium led by Blackstone (unrated), a private equity firm, joined by a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), will buy a 6% stake in the bank, with Nordea and DNB retaining 4% of ownership, shared equally. Luminor has a market share of 2% in loans and 6% in deposits as of year-end 27 in the Baltic countries, making it the third largest bank after Swedbank AB (Aa2/Aa2 stable, a)'s and SEB (Aa2/Aa2 stable, a)'s subsidiaries (Exhibit ). Detailed credit considerations The ratings reflect Luminor's consolidated Baltic operations, incorporating a Moderate + macro profile Although the bank currently operates under three distinct legal entities, the ratings assigned to Luminor Estonia reflect Moody s forward-looking assessment of the group s operations as a whole (Luminor) which, by January 2, 29, is expected to legally consolidate Luminor Estonia, Luminor Bank AS in Latvia (Luminor Latvia), and Luminor Bank AB in Lithuania (Luminor Lithuania). At that time, the Latvian and Lithuanian banks will become branches of the Estonian entity. Nevertheless, we believe that creditors of any one legal entity in the group already broadly benefit from the strength of the obligor as a whole given the financial interlinkages and interdependences that exist between the three banks, and the relatively short period of time remaining until the merger is finalized. Luminor's weighted macro profile is Moderate +, weighing its presence in Estonia (macro profile: Strong -), Latvia (macro profile: Moderate), and Lithuania (macro profile: Moderate +) according to the proportion of assets in each country (Exhibit 2). Exhibit 2 Exhibit Weighted profile for Luminor is Moderate + Market share, in terms of total assets, in each domiciled country Total assets in each country as a percentage of aggregated assets for Luminor, as of end-june 28 As of end-27 45% 9.4% 4% Estonia 27% 5% 28.6% % 25% Lithuania 4% 28.2% 25.% 2.4% 8.8% 2% 7.4% 4.2%.% 5% % 5% Latvia Luminor Swedbank SEB SEB Luminor Swedbank SEB Estonia Source: Luminor banks' financial statements Luminor Latvia % Swedbank % Lithuania Source: Bank of Lithuania, Estonia's Supervisory Authority, Financial Industry Association (Latvia) The operating environment is currently supportive of banks performance, with a higher than European Union (EU) average GDP growth, rising nominal wages, and continued monetary stimulus. While over a longer period, these conditions could lead to overheating, there are limited signs that this has been the case so far, with inflation dropping in latter quarters. 26 September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

4 The macro profile also reflects Moody s assessment of the regulatory environment prevailing in the Baltics, which Moody s views as broadly harmonized and aligned with the high EU banking supervision standards. Moody s also notes that the ECB is the lead supervisor of the Luminor banks. At the same time, the macro profile captures risks associated to money laundering and the presence of a substantial amount of nonresident deposits in the Baltics, which have tended to be more volatile than resident deposits. Although Moody s has concluded that Luminor itself has no material direct exposure to non-resident deposits and money laundering concerns more generally, the ratings agency nevertheless incorporates negative adjustments to these macro profile scores to capture recent evidence of weak controls in this area, which pose reputation, contagion and funding risks for all banks operating in the region. Luminor will remain well capitalised Luminor benefits from strong capital position, with Common Equity Tier ratios for the three Baltic banks at 7.7% in Estonia, 8.5% in Latvia and 7.% in Lithuania at year-end 27, already well above the regulatory minimum requirements of 2.6%, 2.9% and.8% respectively (Exhibit 4). We expect that Luminor retains its targeted CET of 7% on a consolidated level once the three banks merge under the Estonian entity. Luminor s current capital levels (Estonia as well as on aggregate level) compare well with rated peers. The capital score assigned to the bank assumes a slight decline in the CET ratio in line with targets due to dividends and loan growth, from 7.6% as of end-june 28. Exhibit 4 Luminor has strong capital buffers in each of its Baltic operations Common Equity Tier ratio, % 2% 8.5% 7.7% 7.8% 7.6% 7.9% 7.% 7.6% 6.7% 6% 2% 8% 4% % Dec-7 Jun-8 Luminor Estonia Dec-7 Jun-8 Luminor Latvia Dec-7 Jun-8 Luminor Lithuania Dec-7 Jun-8 Group Source: Luminor banks' financial statements; Moody's Investors Service own calculations Favourable operating environment will enable quicker reduction of its legacy assets Luminor has a well-diversified loan portfolio within its targeted geography with a healthy combination of low risk appetite and robust risk management controls (Exhibits 5 and 6). Nevertheless, it has inherited a relatively high level of legacy non-performing loans (NPLs) from the pre-merger operations (which were hit by the global financial crisis), which could weigh on the bank s profitability if growth and economic recovery are insufficient to recover these problem loans in the near term. In the current context, we expect the bank s asset quality to gradually improve, with a projected NPL ratio declining to below 5% within the next 2-8 months, from 5.7% at end 27 on an aggregate basis and 7% in recent years (in aggregate, pre-merger) September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

5 Exhibit 5 Exhibit 6 Loan portfolio is well diversified by business line......and by industry Loan book breakdown as of end-june 28 Loan book breakdown as of end-june 28 Business clients % Private banking % Other 7% Leasing & Factoring 22% Construction 5% Transporting & storage 5% Household 4% Private individuals 4% Agriculture, forestry & fishing 9% Manufacturing % Corporates % Source: Luminor Banks' financial statements Wholesale & retail trade % Source: Luminor Banks' financial statements Luminor Baltic s gross loans were extended in Estonia (28% of total), Latvia (29%), Lithuania (4%), with corporate lending representing 57% of the group s exposures and household lending 4% as of end-june 28. At 5.7% at end 27, the problem loan ratio is high but comparable to the rated peers in the region. For Luminor, the largest proportion of NPLs are found within the corporate sector and, more specifically, within small and medium-sized enterprises (SME) involved with the real estate sector (Exhibit 7). In line with other larger Baltic banks, loan losses related to the real estate sector were particularly high during the financial crisis. Exhibit 7 Luminor is actively reducing its legacy problem loans, with high NPL's in corporate exposures As of end-june 28 NPLs (left axis) NPL ratio (right axis) 4% 5 2% 2% EUR million 25 % 8% 7% 2 8% 6% 5 6% 5% 4% % 5 6% 4% % 2% % Households Corporates Estonia Total loans Households Corporates Latvia Total loans Households Corporates Total loans Lithuania Source: Luminor banks' financial statements Consistent risk management, with retained expertise from DNB and Nordea, and robust loan classification and disclosure standards will allow for a continuous monitoring of asset risk during the merger process. Furthermore, the loan growth in the combined portfolio has been modest, with compound annual growth rate of % between The Baltic countries were particularly hit during the financial crisis and Moody s views the portfolio as seasoned. Approximately half of the NPL portfolio, had their first impairment prior to 2. The bank forecasts no new incremental provisions for existing NPLs as it expects the supportive economic environment, strengthened loan recovery procedures and low risk appetite to allow for organic resolution of problematic loans September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

6 The change of majority ownership will have limited effects on asset risk in Moody s opinion. Rather, Blackstone and its co-investors commitment to management s strategy to limit asset growth, while the bank strengthens its funding profile, is positive, reducing incentives to take on additional asset risk. The asset risk score for the consolidated group is ba, reflecting the improving trend, while incorporating the potential volatility in the Baltic economic environment. Increasing volumes of deposits, re-pricing of loan portfolios and closing branches are key to improving profitability Luminor s underlying profitability is modest and lagging peers and we expect it to remain challenged over the next 2-8 months. In the medium term, profitability should improve as restructuring costs related to the merger fade away and the bank realizes benefits from the rationalization of its branch network as well as through more efficient re-pricing of its existing portfolio. DNB s and Nordea s Baltic operations have had historically subpar returns in all three countries when compared to local subsidiaries of other large Nordic banks, partly explained by the large and costly branch network. The bank has already reduced the number of branches to 67 by end-june 28 from approximately 9 in October 27. According Moody's calculations, Luminor reported weak earnings in 27 with return on tangible assets near zero, while picking up to around.% for the first six months of 28 (on aggregate level based on historic returns of the combined entities) with high costs relating to the re-organisation, such as severance pay, branch closures as well as merger costs (Exhibit 8). Costs related to IT investments will increase over the next years as the bank streamlines and develops its IT systems into a common platform. Exhibit 8 Profitability is low compared with peers Net income % Tangible assets ba - global median.5%.% 2.5% 2.%.5%.2%.%.5%.%.9%.9%.4%.%.%.% -.2% -.5% Dec-7 Jun-8 Luminor Estonia Dec-7 Jun-8 Luminor Latvia Dec-7 Jun-8 Luminor Lithuania Dec-7 Jun-8 Aggregate Source: Luminor banks' financial statements; Moody's Investors Service's own calculations Net interest income is the primary source of income and accounts for approximately 7% of total income for Luminor in 27 (both for Estonia and the aggregate group). Net interest margins are strong, and have been very stable over the years a trend we expect to continue. The bank's ambition to attract higher volumes of deposits would benefit its funding costs going forward. Dependency on committed facilities from DNB and Nordea, but volumes of deposits and senior unsecured debt will increase Due to Luminor's dependence on a EUR5 billion committed facility from DNB and Nordea, market funding ratio is high at 2.7% as of year-end 27. We expect market funding to decrease to below % during the outlook period due to our expectation of an increase in the share of deposits in its funding profile (Exhibit 9) September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

7 Exhibit 9 Luminor banks' funding profile As of end-june 28 Customer deposits Due to others Parental funding ST Parental funding LT Senior debt issued TLTRO Other liabilities Equity 7, 2% 6, 5, EUR million 25% 2% 4, 2% % 2%, 25% 2, 2% 9% 5% 49% 5%, 4% Estonia Latvia Lithuania Source: Luminor banks' financial statements Luminor had a gross loan-to-deposit ratio of 42% at year-end 27, which is high in the region, where banks are typically deposit funded. We expect that Luminor has the potential to reach a higher market share in deposits by focusing on its existing customers. Furthermore, Luminor aims to actively reduce reliance on the EUR5 billion committed facility provided by Nordea and DNB, initially by issuing senior unsecured debt. When regulation permits, the bank also plans to issue covered bonds which would, according to Moody s expectations, increase the investor base significantly and increase the number of funding sources. Although the committed facility provides stability to the funding profile, allowing the bank to issue debt at a gradual pace and we assume the bank will repay the entire facility and achieve autonomous funding during the first three years of operation. The group has negligible exposures to non-resident customers, and management has clearly stated that they will not accept nonresident customers without legitimate businesses due to the high risks associated with money laundering. We assess the potential to attract deposits to be high reflected in the assigned funding score of ba2. The group has adequate liquid resources (Exhibit ), and the access to the committed facilities allows the bank to increase its liquid resources considerably, should it need to. The assigned group liquid resource score is ba, reflecting our expectation that the bank will hold slightly lower amounts of liquid assets going forward as the bank manages its liquidity closer to Liquidity Coverage Ratio (LCR) targets of 25%-4%. Exhibit Market funding and liquid resources As of year-end 27 Market funds % Tangible banking assets 45% Liquid assets % Tangible banking assets 4.8% 4% 2.9% 5% % 26.4% 24.8% 25% 2.7% 2.9% 2.8% 2% 5% 9.7% % 5% % Luminor Estonia Luminor Latvia Luminor Lithuania Aggregate basis Source: Luminor banks' financial statements, Moody's Investors Service's own calculations 7 26 September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

8 Support and structural considerations AFFILIATE SUPPORT Moody s assumes a low probability of affiliate support resulting in no uplift from the BCA in the adjusted baseline credit assessment of ba. Due to the sale of their majority stake in Luminor, the sellers, DNB and Nordea, are reducing their financial and reputational interlinkages with Luminor. Due to the lower ownership of Nordea and DNB, which also entails lower capital requirements, as well as reducing financial risks by imposing collateral requirements in the facilities to Luminor provided by these banks, Moody s assesses the affiliate support to be low from these owners. Furthermore, the new owners represented by Blackstone do not result in affiliate uplift, because we see a private equity firm as having lower incentives to support the bank in case of need than a majority bank owner with a history of support. We, nevertheless, view the ownership of Luminor as a source of strategic strength given the expertise of Blackstone with mergers and capital market funding. LOSS GIVEN FAILURE We apply our LGF analysis to Luminor because it is subject to an operational resolution regime, the EU Bank Resolution and Recovery Directive, which implies that investors and creditors will assume losses if the bank fails and is taken into resolution. For this analysis, we assume that the bank's equity and losses will stand at % and 8% of tangible banking assets, respectively, in a failure scenario. We also assume a 25% run-off of junior wholesale deposits and a 5% run-off in preferred deposits. Moreover, we assign a 25% probability to junior deposits being preferred to senior unsecured debt. These assumptions are in line with our standard assumptions. For Luminor, being a universal bank, we assume for the purposes of the LGF that 26% of total deposits are junior. In our LGF analysis, we include Luminor s aggregate balance sheet in the Baltics, in line with our forward looking view of the merged entity. Luminor s deposits are likely to face very low loss given failure, because of the bank's high volume of junior deposits, meaning that losses would be spread over a large depositor base, and a sizeable cushion of senior debt, which we expect the bank to start issuing during the year. As a result, our Preliminary Rating Assessment for deposits includes a two-notch uplift above the bank's Adjusted BCA of ba. Luminor s senior debt will face a low loss given failure due to the forecasted amounts of senior debt issued during the year. As the bank continues issuing higher volumes of senior debt and subordinated instruments, the volumes of loss absorbing liabilities will increase, spreading any losses over a larger creditor base, potentially lowering the loss given failure. GOVERNMENT SUPPORT Due to the systemic importance of Luminor, with approximately 6% of deposits market share in the Baltics as of year-end 27, and the operational resolution regime in the Baltics, Moody s assesses the probability of support to be moderate for senior unsecured debt holders, depositors, and counterparty obligations. All three Baltic countries are considered to be operational resolution regimes, having implemented the Banking Recovery and Resolution Directive, which imposes losses on creditors in case of failure. A moderate support is consistent with how Moody s assesses government support in other EU jurisdictions. DEPOSIT RATINGS The deposit ratings incorporate two notches of LGF uplift and one notch from government support from the bank s adjusted BCA of ba, resulting in a deposit rating of Baa. SENIOR RATINGS The provisional senior MTN ratings incorporate one notch of LGF uplift and one notch of government support from the bank s adjusted BCA of ba, resulting in a (P)Baa2 rating. COUNTERPARTY RISK RATINGs (CRRs) In assigning CRRs to the banks and financial institutions subject to this rating action, Moody's starts with their adjusted Baseline Credit Assessment (BCA) and uses the agency's existing advanced Loss-Given-Failure (LGF) approach that takes into account the level of subordination to CRR liabilities in the institutions' balance sheet and assumes a nominal volume of such liabilities September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

9 Luminor s CRRs are positioned at A/P-2, incorporating three notches of LGF and one notch of government support. COUNTERPARTY RISK (CR) ASSESSMENT 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 () consider only the risk of default rather than expected loss, and (2) 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 (for example, swaps), letters of credit, guarantees and liquidity facilities. Luminor Group s CR Assessment is positioned at A(cr)/Prime-2(cr), four notches above the bank's Adjusted BCA of ba, due to three notches of uplift from the LGF analysis and one notch of government support. The main difference with our Advanced LGF approach used to determine instrument ratings is that the CR Assessment captures the probability of default on certain senior obligations rather than expected loss. Therefore, we focus purely on subordination and take no account of the volume of the instrument class September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

10 Rating methodology and scorecard factors Exhibit Luminor Bank AS (Estonia) Macro Factors Weighted Macro Profile Moderate + Factor Historic Ratio Initial Score Expected Trend Assigned Score Key driver # Solvency Asset Risk Problem Loans / Gross Loans 4.4% baa ba Geographical concentration Capital TCE / RWA 8.2% a baa Stress capital resilience Profitability Net Income / Tangible Assets.7% ba2 b Expected trend Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets Liquid Resources Liquid Banking Assets / Tangible Banking Assets baa2 4.8% 9.7% b2 b b2 Balance Sheet in-scope (EUR million) 5,24 9,66 7,5 2, ,57 26 September 28 Key driver #2 ba 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 Other liabilities Deposits Preferred deposits Junior Deposits Senior unsecured bank debt Equity Total Tangible Banking Assets % ba2 Market funding quality ba Expected trend Expected trend ba2 ba A baa-ba2 ba -ba % in-scope 4.% 62.% 46.% 6.2%.4%.% % at-failure (EUR million) 6,9 8,677 6,79, ,57 % at-failure 4.7% 55.9% 4.8% 2.%.4%.% % Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

11 Debt class Counterparty Risk Rating Counterparty Risk Assessment Deposits Senior unsecured bank debt Instrument class Counterparty Risk Rating Counterparty Risk Assessment Deposits Senior unsecured 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 5.6% 5.6% 5.6% 5.6% baa 5.6% 5.6% 5.6% 5.6% baa (cr) 5.6%.% 5.6%.4% baa2 5.6%.%.4%.% - baa Loss Given Failure notching Additional Preliminary Rating Notching Assessment baa baa (cr) baa2 baa Government Support notching Local Currency Rating A A (cr) Baa (P)Baa2 Foreign Currency Rating A -Baa -- [] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information. Source: Moody's Financial Metrics Ratings Exhibit 2 Category LUMINOR BANK AS (ESTONIA) Outlook Counterparty Risk Rating Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Senior Unsecured MTN -Dom Curr Moody's Rating Stable A/P-2 Baa/P-2 ba ba A(cr)/P-2(cr) (P)Baa2 Source: Moody's Investors Service 26 September 28 Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings

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13 Analyst Contacts Niclas Boheman AVP-Analyst 26 September 28 CLIENT SERVICES Savina R Joseph Associate Analyst savina.joseph@moodys.com Americas Asia Pacific Japan EMEA Luminor Bank AS (Estonia): New issuer - Luminor is assigned Baa Deposit ratings