DNB Bank: Loan Book Risk is Manageable

Norway's DNB bank, one of the lenders most exposed to the energy sector, has tested its loan book against big oil price falls and expects losses to remain below their usual levels next year, it said on Friday.

Around 8 percent of DNB's loan book is to the oil and gas sector but the vast majority of this is low and medium risk so impairments will stay below normalised levels next year, in line with DNB's previous guidance, the company said in a statement.

"In our credit analysis we run sensitivity cases at oil prices below $60 per barrel and we run a one-year liquidity test at $35 per barrel," it said, explaining how it reached its conclusions on its potential loan losses.

Oil prices have fallen by 45 percent to around $60 a barrel since June, squeezing firms' cash-flow and forcing them to slash spending.

DNB expects oil prices to remain volatile in the short term before stabilising in a $65 to $75 per barrel range next year and between $75 and $85 per barrel in 2016. It would then continue rising, reaching $95 by the end of the decade.

DNB also said it was maintaining its forecast for 3 to 4 percent lending growth next year.

The oil price fall is having an impact on companies in the industry.

Seadrill, once the biggest offshore driller by market capitalisation, was forced to suspend dividends in November to reduce debt while Noreco a small producer proposed restructuring this month as it will not be able to service its debt.

State controlled DNB's total oil-related exposure, including to producers, service companies and offshore firms was 144 billion crowns ($19.6 billion) at the end of the third quarter. Sixty three percent of that was classified as low risk and 35 percent as medium risk.

DNB shares have fallen by 7.5 percent over the past three months, in line with the drop in the European banking index .

DNB, which has been a key lender to the sector since oil was discovered off Norway in the 1960s, said the sector's loan losses have been historically low, even during previous oil price volatility.

Reporting by Keith Weir