Moody’s is reviewing for downgrade five regional Norwegian savings banks because it considers that it may have become difficult for the banks to maintain good asset quality, with issuer-specific factors also playing a part in the rating actions. It has also placed on review for downgrade SpareBank 1 Gruppen, which is partly owned by four of the affected banks.

The rating actions were carried out on Friday, with Moody’s saying that it expects to cut four of the savings banks – SpareBank 1 Nord-Norge, SpareBank 1 SMN, SpareBank 1 SR-Bank and Sparebanken Hedmark – by up to one notch and the other, Sparebanken Møre, by up to two notches.

Sparebanken Møre is rated A2 by Moody’s, while the others are rated A1.

SpareBank 1 Nord-Norge, SpareBank 1 SMN, SpareBank 1 SR-Bank and Sparebanken Hedmark are part of the SpareBank 1 alliance of regional savings banks and smaller savings banks, and, together with Samarbeidende Sparebanker and the Norwegian Confederation of Trade Unions and affiliated trade unions, own the holding company SpareBank 1 Gruppen, whose ratings Moody’s is also reviewing for downgrade because of the rating action on the senior debt ratings of some of its owners. The banks that form the SpareBank 1 alliance own two covered bond issuers, SpareBank 1 Boligkreditt and SpareBank Næringskreditt AS. [Updated to clarify structure.]

Moody’s rates SpareBank 1 Gruppen AS Baa1, with a short term rating of P-2.

The rating agency said that higher home prices and household indebtedness, and a higher proportion of high LTV loans on the savings banks’ retail loan books, render them vulnerable to economic downturns.

“In addition we note that the banks are increasingly transferring their lowest LTV retail mortgage loans to covered bond vehicles, which remain an attractive source of funding,” it said. “This means however that the banks’ remaining loans, on which unsecured bondholders have a claim, are relatively low quality assets.”

Moody’s also noted that it considers loans to the commercial real estate and shipping industries as more volatile and therefore more likely to deteriorate in a downturn, and that high borrower concentrations in the banks’ corporate loan books could accelerate the pace and increase the extent of any deterioration in asset quality.