Moody’s has downgraded Norway’s Storebrand Bank from A3 to Baa1 and assigned the rating a negative outlook due to the rating agency’s expectations of continued low profitability at the bank and its concerns about the bank’s commercial real estate exposure.

Storebrand Bank is the parent of Storebrand Boligkreditt, a Norwegian covered bond issuer whose covered bonds Moody’s rates Aaa, with a Timely Payment Indicator (TPI) of “high”.

The rating action, taken today (Tuesday), concludes a review for downgrade implemented in July on the back of concerns related to the bank’s franchise strength, profitability and credit risk concentration, particularly with regards to commercial real estate exposure, said Moody’s.

“The downgrade reflects Moody’s expectation that, notwithstanding small recent improvements in performance, Storebrand Bank’s profitability will remain constrained in the short to medium term,” said the rating agency.

It also noted concerns over high levels of exposure to commercial real estate, which represents 33% of the bank’s total loan portfolio, or almost five times tier one capital at year-end 2010.

“The negative outlook reflects concerns that the high levels of commercial real estate exposure may pressurise the bank’s profitability and capital adequacy, should asset quality deteriorate,” added Moody’s.

The pace and extent of real estate growth in Norway remains a concern, it said.