Moody's on June 3 downgraded certain ratings of a number of banks based in Norway.

DNB ASA unit DNB Bank ASA's long-term counterparty risk assessment and rating were downgraded to Aa2(cr) from Aa1(cr) and Aa2 from Aa1, respectively. The bank's P-1(cr) short-term counterparty risk assessment, P-1 short-term counterparty risk rating, Aa2 senior unsecured debt rating and Aa2/P-1 long- and short-term bank deposit ratings were affirmed. The outlook on the bank's long-term deposit and senior unsecured debt ratings was changed to stable from negative.

The agency also downgraded the long-term counterparty risk assessments of Sparebanken Sør, Sparebanken Vest, SpareBank 1 Nord-Norge, SpareBank 1 Østlandet, SpareBank 1 SR-Bank ASA and SpareBank 1 SMN to A1(cr) from Aa3(cr) and their counterparty risk ratings to A1 from Aa3.

Moody's also affirmed the banks' P-1(cr) short-term counterparty risk assessments, P-1 short-term counterparty risk ratings, A1 senior unsecured debt ratings and A1/P-1 long- and short-term bank deposit ratings.

The agency also affirmed the A1 long-term issuer rating of Sparebanken Sør, SpareBank 1 Nord-Norge, SpareBank 1 Østlandet, SpareBank 1 SR-Bank ASA and SpareBank 1 SMN and changed the outlook to stable from negative on the rating.

In addition, Moody's downgraded SpareBank 1 Boligkreditt AS' long-term counterparty risk assessment to A2(cr) from A1(cr) and long-term counterparty risk rating to A2 from A1. The agency also affirmed the bank's P-1(cr) short-term counterparty risk assessment, P-1 short-term counterparty risk rating and A2 long-term issuer rating. Furthermore, the agency changed the outlook on the company and its long-term issuer rating to stable from negative.

The rating actions reflect Moody's expectation that the banks will issue additional loss-absorbing instruments in the form of nonpreferred senior debt to comply with the Norwegian Financial Supervisory Authority's requirements for own funds and eligible liabilities, which will potentially reduce loss severity for junior depositors and senior unsecured creditors according to the agency's Loss Given Failure analysis.

The downgrades in the banks' counterparty risk assessments and counterparty risk ratings reflect the agency's assumption of lower government support for Norwegian banks, without incorporating the impact of higher loss-absorbing cushion that the banks will obtain through issuance of loss-absorbing instruments. Moreover, the ratings actions align the support assumptions for Norwegian banks closer to those of their EU peers, the agency noted.