1. Norwegian savings banks and Equity Certificates (EC) New legislation as of 1 July 2009 improves the position of the savings banks

2. Structure The Norwegian banking industry Norwegian authorities and the financial crises - main measures Changes in the legislation of the Savings Banks  From PCC to EC  Possibility of increased influence for the EC-holders  Elimination of the dilution effect  Same priority between the equity-classes 2  07.10.2015

3. Norway: Credit from domestic sources, as of April 09 3  07.10.2015 Source: Statistics Norway  Private Banks  State lending institutions  Mortgage Companies  Finance companies  Bond and certificate debt  Other sources

4. Norwegian banks 2003-2009 (mill NOK) 4  07.10.2015 Q103Q109 Source: Statistics Norway

5. Deposits ratio in Norwegian banks (1) 5  07.10.2015 (1) All banks except branches and subsidiaries of foreign banks in Norway (2) The dividing line between small and medium-sized banks is set at NOK 10bn (measured in assets) at end-2006 (3) DnB NOR Bank ASA (parent bank) and Nordlandsbanken DnB NOR (3) Medium-sized banks (2) Small banks (2) Source: Central Bank of Norway

6. Market shares (total assets) Norwegian banks as of 31 Dec 2008 6  07.10.2015

7. Savings Banks ex DnB NOR 2004- 08 (annual figures, mill NOK) 7  07.10.2015 Source: The Norwegian Savings Banks Association Net interest and credit commission income Net profit Losses on loans

8. Savings Banks ex DnB NOR (quarterly figures, mill NOK) 8  07.10.2015 Source: The Norwegian Savings Banks Association Net interest and credit commission income Net profit Losses on loans

9. Capital Adequacy Ratio, Savings Banks 9  07.10.2015 * The following banks use IRB principles (Internal Rating Based Approach- Foundation): DnB NOR, SpareBank 1 SR-Bank, SpareBank 1 Nord-Norge, Sparebanken Vest og SpareBank 1 SMN. Source: The Norwegian Savings Banks Association Equity Capital Ratio IRB Banks (*) ex DnB NOR Core Capital Ratio IRB Banks (*) ex DnB NOR Equity Capital Ratio all banks ex IRB banks Core Capital Ratio all banks ex IRB banks Q107 Q108 Q109

10. Savings Banks - structure 10  07.10.2015 121 banks Terra-alliansen DnB NOR and partner banks Independent banks 78 banks Mainly small 14 EC banks SpareBank1-alliansen 20 banks 3 of the 4 largest savings banks (ex DnB NOR) 7 EC banks 11 banks incl DnB NOR Otherwise small banks 12 banks All sizes 5 EC banks

11. 11  07.10.2015 The top four EC banks (market cap as of mid June 2009, mill NOK) Source: Oslo Stock Exchange

12. 12  07.10.2015 The EC Index vs the General Index

13. Who ownes shares and ECs? (%, on the Oslo Stock Exchange, as of May 2009) 13  07.10.2015 Source: Oslo Stock Exchange

14. Structure The Norwegian banking industry Norwegian authorities and the financial crises - main measures Changes in the legislation of the Savings Banks  From PCC to EC  Possibility of increased influence for the EC-holders  Elimination of the dilution effect  Same priority between the equity-classes 14  07.10.2015

15. Financial crises: Main Governmental measures 15  07.10.2015 The Ministry of Finance presents to the Storting (Parliament) a proposition on an authorization to implement a 350 billion kroner facility with banks, where Government Bonds are swapped for covered bonds. The Government proposes to establish two new funds with a total capital of NOK 100 billion, Norwegian State Finance Fund with a capital of NOK 50 billion and Norwegian State Bond Fund with a capital of NOK 50 billion. The first offers capital to strengthen the banks and improve their ability to uphold normal lending activity. The deadline for applications is 30 September 2009. Central Bank policy rate (%)

16. Government Bonds swapped for covered bonds, allotment (*) 16  07.10.2015 (*) Allotment per bank under the swap arrangement. Percentage of total assets. Source: Norges Bank

17. Government Bonds swapped for covered bonds: Demand (*) and auction rate 17  07.10.2015 Minimum interest rate (%, right axes) Demand – offered (bill NOK, left axes) (*) Allotted as of 15 June: NOK 138,95 mill

18. The swap arrangement – effects on the money market 18  07.10.2015 Sources: DnB NOR Markets,Thomson Reuters and Central Bank of Norway 5-year bank bond 3-year bank bond Money market premiums (3-month)

19. Structure The Norwegian banking industry Norwegian authorities and the financial crises - main measures Changes in the legislation of the Savings Banks  From PCC to EC  Possibility of increased influence for the EC-holders  Elimination of the dilution effect  Same priority between the equity-classes 19  07.10.2015

20. Changes in the legislation 1 July 2009 for the Savings Banks ”The ”Primary Capital Certificate (PCC)” is replaced by ”Equity Certificates (EC)” The distribution of the profit will be more like ordinary shares The holders of EC’s might have increased influence New deposition to the Premium Fund will be distributed to the bank’s reserves (”Compensation Fund”) and EC-holders (“Premium Fund”) In case of deficit (or closing down) the priority will almost be maintained Dilution effects 20  07.10.2015

21. General assembley – no changes except..( next page ) 21  07.10.2015 Savings Banks - traditionally EC Banks Employees Customers Employees Publicly appointed Customers EC holders 1/4 20-40 % Publicly appointed

22. The EC-holders may (*) have increased influence with regard to: 22  07.10.2015 Reduction and issuing of EC’s Converting part of the Basic Fund to EC Prevention of merging with another bank Prevention of converting to limited companies (commercial bank) (*) Depending of the bank’s statues

23. Premium Fund distributes relatively The Premium Fund is created by new issues or other issues to price above par Afterwards the premium shall be distributed to the ”Premium Fund” which belongs to the EC holders and to the ”Compensation Fund” which belongs to the bank The supervision authorities may intervene if the price differs significant from real value. 23  07.10.2015

24. Holdership of the bank’s capital Subordinated debt Capital owned by EC holders 24  07.10.2015 Higher priority Lower priority EC Premium Fund/Compensation Fund

25. PCC regulation and dilution The PCC holder ratio will be reduced when the dividend relative to the PCC holder ownership is higher than the gifts relative part of the rest of the banks capital. The distribution of charitability gifts is maximised to 25 % of the annual result. And it is possible to pay out 100 percent of the PCC-holders part of the annual result to dividends. PCC-holders have received high dividends Normally therefore the PCC holder ratio will be decreased This might be counteracted by issuing PCC’s Decreasing ratio may result in overcapitalising because the bank will have problems maintaining return on equity. The bank might therefore have problems in maintaining high dividends. 25  07.10.2015

26. EC regulation and dilution I: Allocation of profit Separated equity: 1) owned by the institution (Basic Fund, Gift Fund or Compensation Fund) or 2) Funds or certificates owned by the EC-holders. As with PCC a relative part of the result normally will be transformed to the two holder groups. New with EC is that the relative pay-out to dividends and gifts to the two groups are relatively the same, so that the EC-ratio don’t change. The legislative background states that the EC-ratio ought to be nearly unchanged when distributing the annual result. The new model will in this way be more similar to a limited company. Retained results distributes relatively on the EC-holders Equalisation Fund and the Basic Fund. The dilution effect by distribution the annual results are thus eliminated. 26  07.10.2015

27. EC regulation and dilution II: Changes in EC ratio The possibility of distribution of charitability gifts has increased. To paying out more than 30 percent and 60 percent of annual result to dividends/gifts, the bank has respectively to send a message (30%) or ask for permission(60%) from the supervision authority. The rest of the result allocates to the Equalisation Fund or the Basic Fund (or Gift Fund) The EC ratio reduces when the bank pay from the Equalisation Fund (dilution) The EC ratio increases by issues (negative dilution) The EC ratio increases by deficit (negative dilution) 27  07.10.2015

28. Thank you for your attention! 28  07.10.2015 arne.hyttnes@sparebankforeningen.no