DnB NOR ANNUAL REPORT 2009

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DnB NOR aims to be the Norwegian bank and a leading international niche player

Creating value through the art of serving the customer

Helpful – professional – show initiative

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OPERATIONS

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VISION

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VALUES

Pre-tax operating proﬁ ts before write-downs

NOK 18.7 bn

Earnings per share

NOK 6.43

Total combined assets

NOK 2 076 bn

Market capitalisation

NOK 102 bn

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Return on equity

10.6%

Tier 1 capital ratio

9.3%

Cost/income ratio

48.3%

Share of income from Norwegian operations

83.0%

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KEY FIGURES 2009

Pre-tax operating profits before write-downs

NOK million

NOK million NOK

Earnings per share Profits after minority interests

2009 2008 2007 20 000 15 000 10 000 5 000 0 2009 2008 2007 20 000 15 000 10 000 5 000 0 2009 2008 2007 12 9 6 3 0 18 717 8 585 6.43

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Retail Banking

Large Corporates

and International DnB NOR Markets

Life and Asset

Management DnB NORD

Pre-tax operating profi t Pre-tax operating profi t Pre-tax operating profi t Pre-tax operating profi t Pre-tax operating loss

NOK 7.0 bn NOK 5.7 bn NOK 5.3 bn NOK 1.4 bn NOK (4.3) bn

Return on capital Return on capital Return on capital Return on capital Return on capital

26.1%

13.4%

69.8%

16.6%

(34.4)%

Personal customers in Norway

2 300 000

Corporate clients in Norway

200 000

Internet bank users in Norway

1 600 000

Customers in life and

pension insurance companies in Norway

1 000 000

Mutual fund customers

580 000

Customers in DnB NORD

930 000

Branch ofﬁ ces in Norway

218 Branch ofﬁ ces in DnB NORD

1)

₁₆₃

International branches and representative ofﬁ ces

2)

₂₇

Full-time positions

13 317

1) Branches in Poland, Estonia, Latvia and Lithuania.

2) The DnB NOR Group is represented in Copenhagen, Stockholm, Gothenburg, Malmø, Helsinki, London, Murmansk (9), Luxembourg, Hamburg, Athens, New York, Houston, Santiago, Rio de Janeiro, Shanghai, Singapore, Hong Kong, Chennai and Mumbai.

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DnB NOR IS NORWAY’s LEADING FINANCIAL SERVICES GROUP

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Annual General Meeting 27 April Contact persons Distribution of dividends as of 11 May

BJØRN ERIK NÆSS CFO

Tel.: (+47) 22 48 29 22 [email protected]

PER SAGBAKKEN

Head of Investor Relations/Long-term Funding Tel.: (+47) 22 48 20 72

[email protected]

First quarter 29 April

Second quarter 9 July

Third quarter 28 October

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FINANCIAL CALENDAR 2010

Financial market developments

Development trends in the real economy 16 // DnB NOR and the fi nancial crisis 17

Governance

Group management 44 // Board of Directors 46 // Governing bodies in DnB NOR ASA 48 Corporate governance 50 // Risk management and internal control 56

Capital management and risk categories 58 // The DnB NOR share 72

Business areas

Organisation and management of operations 20 // Retail Banking 22

Large Corporates and International 26 // DnB NOR Markets 30 // Life and Asset Management 34 DnB NORD 38 // Staff and support units 40

2

19

43

79

89 Society and employees

Corporate social responsibility 80 // Employees 84

Directors’ report and annual accounts

Directors’ report 90 // Annual accounts 101 // Auditor’s report 202 Control Committee’s report 203 // Key fi gures 204

DnB NOR in brief

History 2 // Legal structure 2 // Important events in 2009 3 // Key fi gures 4

DnB NOR’s market shares in Norway 5 // DnB NOR’s international units 5 // Business areas 6 Key fi gures – DnB NOR share 8 // DnB NOR’s strategy 9 // Group chief executive’s statement 10

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History

Legal structure

1) Major subsidiaries only. Ownership 100 per cent unless otherwise indicated. Sparebanken

Oslo/Akershus Sparebanken NOR

Den norske

Hypotekforening Gjensidige Bank /Elcon Finans

Sparebanken

NOR Gjensidige NOR Sparebank

Merger 1985 Acquisition 1993 Acquisition 1999 Acquisition 2006 Acquisition (51%) 2005 Merger 2003

Fellesbanken Gjensidige Liv

Forenede Forsikring Gjensidige NOR Spareforsikring Acquisition 1992 Gjensidige NOR ASA Monchebank DnB NORD De-mutualisation De-mutualisation DnB Skandia AM DnB Nordlandsbanken DnB Acquisition 2002 Acquisition 2003 Realkreditt DnB Vital DnB Postbanken Acquisition 1992 DnC Bergen Bank Merger 1990 Acquisition 1996 Merger 1999 Four large savings banks Sparebanken ABC Merger 1990 Merger 2002

DnB NOR

DnB NOR Bank ASA 1) DnB NOR Kapitalforvaltning

Holding AS Vital Forsikring ASA

DnB NOR Skadeforsikring AS DnB NOR ASA Nordlandsbanken ASA DnB NOR Finans AS DnB NOR Næringsmegling AS

Postbanken Eiendom AS DnB NOR Eiendom AS DnB NOR

Meglerservice AS

DnB NOR

Boligkreditt AS DnB NOR

Næringskreditt AS

DnB NOR

Luxembourg S.A. OAO DnB NOR Monchebank

Svensk Fastighetsförmedling AB SalusAnsvar AB Bank DnB NORD AS (51%)

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• The stock market reversed from a downward slide to an upward trend

• The Norwegian government announced the establishment of the State Finance Fund and the State Bond Fund, with total capital of NOK 100 billion

• Access to long-term funding improved

• DnB NOR presented its strategy and updated targets at its Capital Markets Day • DnB NOR Skadeforsikring started its ﬁ rst year of operation

• Norges Bank was the ﬁ rst central bank to implement an interest rate increase

• DnB NOR’s funding situation normalised, though the Group’s funding costs remained higher than before the onset of the ﬁ nancial crisis

• DnB NOR completed an equity issue, raising a net amount of NOK 13.9 billion

• DnB NOR Bank’s rating was downgraded to A+ with a stable outlook by Standard & Poor’s

• DnB NOR was named Norwegian champion in the category “housing loans above NOK 2 million” by the magazine Dine Penger

• Postbanken and DnB NOR were ranked as Norway’s best and fourth best bank, respectively, by the magazine Norsk Familieøkonomi

• Vital was ranked as Norway’s best pensions manager by the magazine Investment & Pension Europe (IPE) • DnB NOR’s Board of Directors decided to initiate an evaluation of the shareholder agreement with NORD/LB • DnB NOR completed a large unsecured bond issue and was among the few banks

able to obtain funding without a government guarantee • DnB NOR established DnB NOR Næringskreditt

• Financial markets showed an improvement

• DnB NOR established the business areas Retail Banking and Large Corporates and International • DnB NOR announced plans to strengthen equity through an issue of ordinary shares

• DnB NOR Bank’s rating was downgraded to Aa3 by Moody’s

• DnB NOR qualiﬁ ed for inclusion in the Dow Jones World Sustainability Index

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Q2

Q3

Q4

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INCOME STATEMENT

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KEY FIGURES

1)

Key fi gures

Amounts in NOK million 2009 2008 2007 2006 2005

Net interest income 22 633 21 910 17 866 15 289 13 610

Net other operating income 14 994 12 438 13 732 13 204 11 725

Ordinary operating expenses 18 911 18 721 15 974 14 263 12 711

Other expenses 0 0 476 164 153

Pre-tax operating profi t before write-downs 18 717 15 627 15 148 14 066 12 471

Net gains on fi xed and intangible assets 26 52 2 481 365 775

Write-downs on loans and guarantees 7 710 3 509 220 (258) 137

Pre-tax operating profi t 11 032 12 170 17 409 14 689 13 109

Taxes 4 086 3 252 2 387 2 881 2 965

Profi t from operations and non-current assets held for sale, after taxes 80 0 0 0 0

Profi t for the year 7 026 8 918 15 022 11 808 10 144

Profi t attributable to shareholders 8 585 9 211 14 780 11 665 10 131

Profi t attributable to minority interests (1 559) (293) 242 143 13

Earnings per share (NOK) 6.43 6.91 11.08 8.74 7.59

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BALANCE SHEET

Amounts in NOK million 31 Dec. 2009 31 Dec. 2008 31 Dec. 2007 31 Dec. 2006 31 Dec. 2005

Total assets 1 823 453 1 831 699 1 473 919 1 320 242 1 081 428

Lending to customers 1 114 886 1 191 635 970 504 827 947 697 579

Deposits from customers 590 745 597 242 538 151 474 526 410 991

Average total assets for the year 1 905 708 1 635 113 1 411 576 1 209 037 1 001 705

Total combined assets at year-end 2 075 824 2 140 928 1 834 006 1 687 876 1 459 000

2009 2008 2007 2006 2005

Return on equity (per cent) 10.6 12.4 22.0 19.5 18.8

Dividend per share (NOK) 2) _1.75 _0.00 _4.50 _4.00 _3.50

Core (Tier 1) capital ratio at end of period (per cent) 9.3 6.7 7.2 6.7 7.4

Capital adequacy ratio at end of period (per cent) 12.1 9.5 9.6 10.0 10.2

Write-downs relative to net lending to customers (per cent) 0.67 0.33 0.02 (0.03) 0.02

Average combined spread for lending and deposits (per cent) 1.15 1.04 1.00 1.08 1.19

Share price at end of period (NOK) 62.75 27.00 83.00 88.50 72.00

Diluted share price at end of period, adjusted for rights issue (NOK) 62.75 25.64 78.82 84.04 68.37

Price/book value 1.04 0.47 1.51 1.84 1.68

1) For a more detailed table of key fi gures, see page 204. 2) Proposed dividend for 2009.

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DnB NOR’s international units

Corporate market

Other international units Norwegian units DnB NOR’s market shares

DnB NORD 34% 12% 82% 4 185 2 242 139 68 83% 6% 11% 6%

1) Share of credit from credit institutions. Lending 1)

as at 31 Dec. 2009 as at 31 Dec. 2009Deposits Policyholders' funds as at 30 Sept. 2009 Mutual fund assets as at 31 Dec. 2009

Share of income in international units

2009

Lending volume in DnB NOR's international units NOK million Share of lending in international units as at 31 Dec. 2009 53% 32% 28% 21% 26% 35% 24% 2008 2009 31 Dec. 2008 31 Dec.2009 3 262 2 468 181 98 Income in DnB NOR's international units NOK million

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Business areas

Key fi gures as at 31 Dec. 2009

Large Corporates and International is responsible for serving the Group’s largest Norwegian corporate clients and for DnB NOR’s international bank-ing operations. The business area’s operations are based on sound, long-term customer relationships, a broad product range and the ability to offer customers ﬁ nancial services adapted to prevailing market conditions. DnB NOR is recognised for its expertise within complex international transactions, and its international operations focus on the Group’s strategic priority areas, which are shipping, energy and seafood.

Pre-tax operating proﬁ ts NOK 5 657 million

Cost/income ratio 21.0%

Lending NOK 335 billion

Deposits NOK 193 billion

Return on allocated capital 13.4%

No. of full-time positions 1 061

DnB NOR Markets is the Group’s investment fi rm and serves customers from its head offi ce in Oslo, 13 regional sales desks in Norway, six inter-national offi ces and via electronic channels. Key products include foreign exchange, interest rate and commodity products, securities and other investment products, debt and equity fi nancing in capital markets, research and advisory services, as well as custodial and other securities services. To better identify and meet current and future customer needs, cooperation with the Group’s other business areas is important, and these provide an important sales channel for DnB NOR Markets’ products. The main focus is on customer activities, while trading activities should support customer activities with products and prices.

No. of full-time positions 647

Retail Banking is responsible for serving the Group’s 2.3 million personal customers and more than 100 000 corporate customers in Norway. By coordinating the service to the various customer segments in local markets, Retail Banking will make the services better and more accessible while increasing operational efﬁ ciency. By offering competitive products and high-quality advisory services, the business area aims to improve customer satisfaction scores. DnB NOR has Norway’s largest distribution network for ﬁ nancial services. Banking services on mobile phones show rapid growth, and DnB NOR is at the vanguard of developing such services to both per-sonal and corporate customers.

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RETAIL BANKING

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LARGE CORPORATES AND INTERNATIONAL

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agement and is responsible for life insurance, pension savings and asset management in the Group. Vital provided insurance coverage for around one million policyholders and had group agreements with approximately 25 000 companies at year-end 2009. DnB NOR Asset Management had some 580 000 retail clients and a leading position among Norwegian and Swedish institutional clients.

– Vital

– Asset Management

NOK 1 134 million NOK 217 million

Assets under management NOK 486 billion

No. of full-time positions 961

The operations of DnB NORD, in which DnB NOR has a 51 per cent owner-ship interest, are mainly concentrated in the Baltic States and Poland. The bank offers a wide range of products to both corporate and retail customers. DnB NORD was strongly affected by the global fi nancial crisis, which caused a serious cool-down in the Baltic economies. The economic downturn resulted in a high level of write-downs on loans in 2009. The effects of the fi nancial crisis are expected to last through 2010, though DnB NORD anticipates a reduction in write-downs on loans compared with 2009. DnB NORD will focus on consolidating its operations, improving cost-effi ciency and reducing losses.

Pre-tax operating loss NOK (4 289) million

Return on allocated capital (34.4)%

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DnB NORD

1) In early 2010, the insurance operations in the Group were coordinated, and the responsibility for DnB NOR Skadeforsikring was transferred to the business area, which changed its name to Insurance and Asset Management.

Retail Banking Large Cor-porates and International DnB NOR Markets Life and Asset Management DnB NOR DnB NORD

Retail Banking Large Corporates

and International DnB NORMarkets Life and Asset Management DnB NORD

Pre-tax operating profit before write-downs

NOK million 10 000 8 000 6 000 4 000 2 000 0 (1 000) 3 936 748 764 (347) 1 351 5 331 6 785 6 410 7 669 8 569 2008 2009

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Key fi gures – DnB NOR share

2009 turned out to be a very good year for the DnB NOR share. The share price rose by

145 per cent, which was signifi cantly higher than the 80 per cent unweighted average

increase in the share prices of the Group’s Nordic peers. The DnB NOR share also

outper-formed its Nordic peers over the past two and three-year periods. DnB NOR had a market

capitalisation of NOK 102 billion at end-December 2009 and is the third largest company

listed on Oslo Børs (the Oslo Stock Exchange).

1) Unweighted average in local currency of Danske Bank, Swedbank, Nordea, SEB and Handelsbanken.

Total annual return as at 31 December 2009

Total annual return (%) Last year Last two years Last three years

DnB NOR 144.7 (7.6) (5.4)

Nordic average 1) _79.5 _{(14.2) (12.0)}

Dividend for the fi nancial year

2009 (proposal) NOK 1.75

2008 NOK 0.00

2007 NOK 4.50

2006 NOK 4.00

2005 NOK 3.50

SHARE PRICE DEVELOPMENT IN 2009

96 118 111 36 102 0 40 80 120 50 100 150 200 250 300 31 December 2008 = 100 Local currency

DnB NOR compared with Nordic financial services groups ¹)

NOK billion

The DnB NOR Group's market capitalisation

31.12.08 28.02.09 30.04.09 30.06.09 31.08.09 31.10.09 31.12.09 31 Dec. 2005 31 Dec. 2006 31 Dec. 2007 31 Dec. 2008 31 Dec. 2009 DnB NOR

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The turmoil in the ﬁ nancial markets in 2008 and 2009 changed the underlying macroeconomic

assumptions and affected DnB NOR’s expansion in the short term, not least internationally.

However, the Group’s long-term strategy and growth ambitions remain unchanged.

BUSINESS IDEA

DnB NOR will be customers’ best fi nancial partner and meet their needs for fi nancial solutions.

DnB NOR’s strengths are a local presence and a full range of products. DnB NOR has a unique platform in the Norwegian market:

• high market shares in all segments • the largest customer base

• the most extensive distribution network

Its long-term focus on selected industries such as shipping, energy and seafood has made DnB NOR a leading international niche player.

VISION AND VALUES

An important target for the Group is to achieve even stronger customer orientation in its operations and improve customer satisfaction. DnB NOR’s vision, Creating value through the art of serving the customer, is supported by the values helpful, professional and show initiative. Employees which are helpful, professional and show initiative are vital if DnB NOR is to succeed in implementing its strategy.

STRATEGY

By capitalising on the Group’s strengths and unique position, DnB NOR will be the Norwegian bank and a leading international niche player.

Strengthen and consolidate DnB NOR’s position in Norway

– the Norwegian bank

DnB NOR will build and strengthen relations with high-quality customers. DnB NOR will:

• offer extensive distribution – present a uniform corporate image

• offer a complete range of attractive products which meet customer needs • offer competitive prices and products which create value for customers • engage in long-term, honest and relevant communication with customers • meet the needs of the largest corporate clients in Norway through strong

industry expertise and local competitive power

Profi table international growth built on Norwegian expertise

– a leading international niche player

DnB NOR will build long-term relations with the largest corporate clients and focus on selected industries based on its core competencies. DnB NOR’s target segments will be:

• shipping • energy • seafood

DnB NOR will be among the most cost-effective market

players in Europe

DnB NOR will coordinate group and support functions to ensure consistent deliveries, standardised processes and greater automation.

Streamlining measures will be given high priority by:

• strengthening and coordinating procurement functions in the Group • coordinating and consolidating IT functions

• standardising and automating products, services and customer service where expedient

• coordinating and rationalising staff and support functions

FINANCIAL TARGETS

DnB NOR will give priority to long-term value creation for its shareholders and aims to achieve a return on equity and a market capitalisation which are competitive in relation to its Nordic peers.

The successful implementation of DnB NOR’s strategy will result in DnB NOR reaching its long-term ﬁ nancial targets, which are: • a return on equity above 13 per cent

• cost saving measures with an annual effect of NOK 2 billion from the end of 2012

• an ordinary cost/income ratio below 46 per cent from 2012 Capital strategy and dividend policy:

• DnB NOR to be among the best capitalised ﬁ nancial groups in the Nordic region

• AA level ratings for long-term debt for DnB NOR Bank ASA • dividend payments representing approximately 50 per cent of annual

proﬁ ts

Dividends will be determined on the basis of expected proﬁ t levels in a normal situation, external parameters and the need to maintain capital adequacy at a satisfactory level.

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GROUP CHIEF EXECUTIVE’S STATEMENT

2009 was a good year for DnB NOR in light of the weak international economic conditions,

with annual proﬁ ts of NOK 7 billion and a return on equity of 10.6 per cent. At the same time,

we have never been in a better position to meet our customers’ expectations and needs.

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operating profi ts before write-downs remained fi rm for 2010. Actual write-downs were below estimated fi gures, totalling NOK 7.7 billion for 2009. The Group delivered a sound fi nancial performance each quarter, recording pre-tax operating profi ts before write downs of NOK 18.7 billion for the full year.

On 25 September, we announced a rights issue of NOK 14 billion. The share issue was fully subscribed at the lowest discount obtained by any European bank during the ﬁ nancial crisis. At the end of 2009, DnB NOR had a Tier 1 capital ratio of 9.3 per cent and a leverage ratio of 5.6 per cent, making us one of the most solid banks in Europe. We are well prepared to meet our customers’ future ﬁ nancing needs and changes in external parameters in the years to come.

I am impressed by the contribution made by the Group’s employees through the year. They did their best every day for the Group’s customers . Losses were limited, customer relationships were strengthened, and new contacts were made.

DnB NOR was named Norwegian champion in the category “Housing loans above NOK 2 million” by the magazine Dine Penger in its annual bank ranking. This conﬁ rms that we managed to retain our customer focus during a challenging year. While many international banks downscaled their operations in Norway, we strengthened our position as “the Norwegian bank”. Among personal customers in Norway, we had a 35 per cent market share of the savings market and 28 per cent of the lending market at the beginning of 2010.

As a market leader in most segments, DnB NOR has a unique vantage point from which to observe the Norwegian economy. More than 80 per cent of our income stems from operations in Norway, and in 2009 our write-downs on loans in Norway were lower than what we regard as normalised losses through a business cycle.

During the ﬁ nancial crisis, governments on four continents implemented successful and coordinated measures. The Norwegian authorities used their economic manoeuvrability to implement some of the most extensive budget stimulus measures in the world. Most economic indicators reversed during the summer of 2009, and DnB NOR Markets forecasts global GDP growth of 3.4 per cent for 2010.

The start of 2010 appears to signal better times ahead for Norway than we feared 12 months ago, however, certain industries and companies

In such an economic climate, we believe that DnB NOR’s interna-tional strategy is robust. Our main priority areas of energy, shipping and seafood represent important industries in both the developed and emerging economies. Our extensive international presence makes us well positioned to realise our international ambitions. Furthermore, we believe that our operations in the Baltic region represent a sound platform for long-term growth in areas that are geographically close to Norway. During 2009, we made a number of organisational changes, and we are now in the process of coordinating and integrating our operations to meet the needs of DnB NOR’s personal customers and SMEs in Norway in a better and more holistic manner. We have a unique distribution network, including 218 branch offi ces, 913 in-store banking outlets, 117 real estate brokerage offi ces and 208 post offi ces. Our Internet banks are used by 1.6 million customers, and 500 000 customers access our banking services via their mobile phones. Our aim is that our customers will fi nd that DnB NOR presents a more uniform corporate image to the market – irrespective of how they choose to use our services.

We have also strengthened the part of our organisation working with our largest international clients. We are conﬁ dent and optimistic about our international operations within industries where we have well-established solutions and the exper-tise to succeed.

In addition, we have been through an extensive process to formulate a new vision and new values for the Group. Our wish for 2010 is that each individual customer’s meeting with DnB NOR will be characterised by our employees putting our values into practice, showing helpfulness, profes-sionalism and initiative.

In DnB NOR, our aim is to create lasting values for our customers, shareholders, employees and society at large. I look forward to work-ing towards our goals and meetwork-ing future challenges together with the Group’s motivated employees.

Rune Bjerke

Group chief executive

“Our wish for 2010 is that each individual

customer’s meeting with DnB NOR will be

characterised by our employees putting our

values into practice, showing helpfulness,

professionalism and initiative.”

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> The fi nancial crisis demonstrated

the importance of stable

ﬁ nancial institutions which safeguard customer interests and

values over time. DnB NOR, the Norwegian bank, has created

values for more than 170 years.

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Credit risk margins narrowed considerably in the international bond markets during 2009, and it became possible, once again, for certain ﬁ nancial institutions and companies to obtain funding in the international capital markets. However, the margins remained higher than before the ﬁ nancial turmoil.

Events in 2009 must be seen in light of the fact that the fi nancial crisis started in the summer of 2007 and was therefore well-entrenched. A crisis of confi dence occurred in the international capital markets related to securities based on high-risk US home loans (sub-prime loans). These securities, which were diffi cult to value and hence trade in, were sold on a large scale to numerous fi nancial institutions. Uncertainty about who had such doubtful commitments on their books led to a dramatic loss of con-fi dence among international banks. Consequently, the interbank markets ceased to function. These markets are normally the source of funding with maturities ranging from one day to twelve months. Suddenly, all activ-ity became very short-term. The majoractiv-ity of available liquid funds had maturities of maximum one week and some up until one month. At times, certain markets completely ceased to function. As soon as the third quarter of 2007, the prevailing uncertainty, combined with dysfunctional markets, exacerbated the liquidity problems of several international banks. It also became far more diffi cult for the banks to obtain funding based on loans with maturities exceeding 12 months. The negative effects spread to the US dollar-based Norwegian money market from the onset of the fi nancial crisis in 2007. In practice, Norwegian money market rates are determined in the market for currency swaps between the Norwegian krone and the US dollar. In order to determine Norwegian interest rates, market players require access to US dollars with corresponding maturities. When the sup-ply of US dollars declined and the situation became uncertain, funds in the money market in Norwegian kroner became sparse. The major fl uctuations in US money market rates had a direct effect on the Norwegian rates. During the fi rst phase of the crisis, the Norwegian and Nordic banks remained relatively unscathed. They had refrained from investing in the type of mortgage-backed securities that were the source of the turmoil. In Norway, in the summer of 2007, covered bonds were starting to be intro-duced as a new funding instrument, providing investors with security in the best housing loans. This type of long-term funding with fi ve to ten-year maturities was still available up until the autumn of 2008. Norwegian banks were therefore able to maintain a normal level of lending activity even in a more challenging market. It was also positive for DnB NOR that DnB NOR Bank ASA was upgraded by the rating agency Standard & Poor’s to AA- in April 2008, a period when many other banks were downgraded.

When the US government did not step in to save the investment bank Lehman Brothers, resulting in the fi ling for Chapter 11 bankruptcy protec-tion on 15 September 2008, the fi nancial turmoil developed into the most serious fi nancial crisis since the 1930s. The US dollar interbank market dried up completely, and even the covered bond market ceased to function as a source of funding for Norwegian and international banks. Norway also had to contend with the fact that due to the small size of its domes-tic money and capital markets, Norwegian banks obtain a major part of their funding from abroad. The crisis escalated after several consecutive quarters of dysfunctional money and capital markets. A point was reached when only short-term liquidity was available, which was a factor behind the gradual rise in liquidity risk in the banking system both in Norway and internationally .

During this phase, when the private banks were no longer willing to lend each other money, other than on very short maturities, and other private funding sources turned towards risk-free alternatives, such as govern-ment securities, the central banks and national authorities had to secure liquid funds and fi nancing for the banking systems. Extraordinary funding schemes were established for banks in the central banks. In some coun-tries, there was a fear that bank customers, losing confi dence in the bank-ing systems, would withdraw their deposits. Danish and German banks received a general government deposit guarantee, irrespective of amount. In a number of countries, including Sweden and Denmark, government guarantee schemes were established for long-term funding to the banks. Deposit guarantee schemes were strengthened and banks in diffi culties received fi nancial support from their own countries’ govern ments, thereby avoiding losses for depositors and other lenders.

Even though Norwegian banks were ﬁ nancially sound, the global ﬁ nancial turmoil meant that also they were unable to count on funding from the international capital markets other than on a very short-term basis. In com-petition with government-guaranteed alternatives in other countries, there was also a danger that deposits and savings not covered by the Norwegian deposit guarantee scheme, could be transferred to banks in other countries. It was feared that customers would be encouraged to move their deposits from Norwegian banks to state-guaranteed deposits in other countries. It was important for DnB NOR to give the Norwegian authorities a total pic-ture of the situation and help implement the most appropriate measures. It was pointed out that banks which only had access to short-term funding would not be able to maintain normal lending operations. The liquidity risk would then become too great. Measures were therefore proposed to also secure longer-term funding, i.e. a minimum period of three years.

Global ﬁ nancial markets stabilised during 2009 and then gradually improved. The stock

markets followed suit, recovering rapidly after bottoming out in the ﬁ rst quarter of 2009.

Nevertheless, most markets were far from the high levels reached towards the end of 2007.

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As one of several measures, on 12 October 2008, the Norwegian authori-ties launched a scheme to secure the banks long-term funding whereby the government would exchange Norwegian Treasury bills for covered bonds. The agreements were made based on maturities of up till fi ve years. The fi nal version of the scheme gave the opportunity to exchange bonds for Treasury bills over a revolving period of maximum fi ve years. The banks would then be able to sell the Treasury bills and thus obtain funding, or use them as collateral for funding from others. The knowledge that DnB NOR and other Norwegian banks had such a secure source of funding was, together with other measures, suffi cient to calm fears surrounding the liquidity situation. The swap scheme enabled DnB NOR and other banks to make better use of available short-term, unsecured funding in their lending operations than would otherwise have been the case. DnB NOR therefore used the exchanged Treasury bills to build up liquidity reserves. The scheme ensured the Norwegian government a margin of minimum 0.4 percentage points from the swap scheme with the banks. Norges Bank also eased collateral requirements for loans in the central bank and provided the market with foreign currency loans.

The fi rst auction under the swap scheme was held on 24 November 2008. The scheme was gradually phased out as the fi nancial markets normal-ised during the autumn of 2009. The agreements with the longest terms will expire in September 2014. The swap scheme encompassed a total of NOK 230 billion, of which DnB NOR has entered into agreements totalling NOK 118 billion. Even though access to long-term funding through the private bond markets started to improve towards the end of 2009, the banks’ long-term funding costs remained at a much higher lever than before the onset of the fi nancial crisis in the summer of 2007. An important measure to secure trust in the Norwegian fi nancial system was the establishment of the Norwegian State Finance Fund in March 2009, with capital totalling NOK 50 billion. The purpose of the Fund was to provide Tier 1 capital for Norwegian banks. Thirty-four banks applied for capital injections, amounting to a total of NOK 6.7 billion, and the total assets of these banks represented approximately 15 per cent of the total assets of Norwegian banks. A practical consequence of the establishment of the State Finance Fund was that all Norwegian banks were given more time to investigate what opportunities existed to obtain equity by normal means in the capital markets and await a further normalisation of market conditions. This proved to be very advantageous for DnB NOR.

Another measure was the establishment of the State Bond Fund to contribute to increasing liquidity and the supply of capital to the Norwegian corporate bond market. The Bond Fund is administered by

Folketrygd-fondet, the National Insurance Fund, and has total capital of NOK 50 bil-lion. As conditions normalise, the bond fund will gradually be downscaled and eventually phased out.

DEVELOPMENT TRENDS IN THE REAL ECONOMY

In 2009, the international economy was strongly affected by the crisis in the ﬁ nancial markets and its spillover effects. To stimulate economic activity, the central banks reduced their key interest rates to historically low levels and several countries introduced so-called quantitative easing as a monetary policy measure. This was done by purchasing Treasury bills and corporate securities in order to inject liquid funds and reduce interest rate levels on securities with long maturities.

The fi nancial crisis had an unusually sudden effect on the real economy and led to the most dramatic downturn in the international economy since the Second World War. In many countries, manufacturing output fell by 20-30 per cent over a few quarters. There was also a sharp fall in total GDP growth, and unemployment rose steeply. Gradually, manufacturing production stabilised and in the second half of 2009, there were clear signs of a hesitant economic recovery. Fiscal policy measures were used actively to curb the economic downturn, while the recession led to lower government revenues and higher public expenditure on account of a rise in unemployment benefi ts etc. Fiscal policy measures were necessary to stimulate economic activity, but also caused a rapid rise in public debt. In many countries, public debt rose so high that it put pressure on govern-ment fi nances while further economic growth became uncertain. High debt in the private sector also created a need for consolidation in both the business and the household sector. This may be a contributory factor in reducing future economic growth.

The Norwegian economy has also been affected by the global recession both via international trade and through international ﬁ nancial markets. Parts of the export industry and the building and construction industry have been hard hit. In spite of a pronounced economic contraction, there has only been a slight rise in unemployment levels in Norway. One reason is that counter-cyclical policy has been stronger than in most other coun-tries. The oil industry has also helped stabilise the Norwegian economy as investment within the sector has remained at a high level due to the long time lags from decision-making to implementation. The ﬁ nancial crisis resulted in a rapid weakening of the Norwegian krone against both the euro and the US dollar, which eased the pressure on Norway’s export industries. The weakening of the krone was partially reversed during 2009 as Norwegian interest rates were raised at a faster rate than in most other countries.

31 December 2006 = 100

31 Dec.

2006 31 Dec. 2007 31 Dec. 2008 31 Dec. 2009

Japan New York London Index Share indices 120 105 90 75 60 45 30

(21)

The rise in unemployment was also counteracted by the fact that the many immigrants working in Norway on short-term contracts returned home when their jobs were affected by the downturn. For others, higher education became more attractive, reducing the pool of workers and hence also unemployment ﬁ gures. The Norwegian economy is still in a period of recession, but shows clear signs of improvement. In particular, private and public sector consumption and public investments make a positive con-tribution, though exports of traditional goods have also started to recover. Housing investments and investments in the business sector have not yet returned to former levels, but escalating housing prices are expected to rapidly cause a rise in housebuilding activity .

Household debt, in per cent of disposable income, had reached a histori-cally high level towards the end of 2009, partly on account of low interest rates and rising housing prices. Nevertheless, the general ﬁ nancial situa-tion for Norwegian households was positive.

DnB NOR AND THE FINANCIAL CRISIS

DnB NOR weathered the fi nancial crisis well in 2009. This is partly due to the fact that Norway, being the Group’s predominant domestic market, has experienced a less negative economic trend than most other countries. Norway’s favourable economic platform has made it possible for the Nor-wegian government to implement strong stimulus measures. However, the Group has also benefi ted from having a focused and conservative credit strategy over many years, based on experience gained from the banking crisis in Norway in the early 1990s. In addition, DnB NOR has had moder-ate liquidity risk and no liquidity risk relmoder-ated to off-balance-sheet commit-ments. The Group is committed to transparency in relation to capital market investors, which has ensured trust during challenging times. In 2008 and 2009, DnB NOR endeavoured to maintain close to normal credit activity in the Norwegian market. Due to the covered bonds swap scheme, housing loans became self-fi nancing and caused no great increase in funding costs. DnB NOR’s personal customers also benefi te d from the positive effects of the scheme through favourably priced housing loans.

In the corporate market, the bank has given priority to existing customers. On the whole, credit strategies have not been greatly changed. Neverthe-less, when customers may have found it more difﬁ cult to be granted loans, this has primarily been due to the fact that the outlook for companies and projects has appeared weaker than before. For corporate customers, inter-est rates have been reduced less than the changes in money market rates. As in other banks, DnB NOR’s funding costs in the capital markets have

risen signiﬁ cantly. The credit risk margin has been widened to some extent to reﬂ ect customers’ weakened credit quality.

On the funding side, DnB NOR was well positioned in 2009. DnB NOR Boligkreditt was established in the summer of 2007 and a substantial volume of housing loans was ready to be transferred from the bank to this company for the issuance of covered bonds. Ever since the start of the global fi nancial turmoil in the autumn of 2007 and until the end of 2009, DnB NOR endeavoured to gradually increase the maturity of its funding and capitalise on the periods when the market conditions were relatively favourable. DnB NOR was one of the fi rst banks able to obtain fi ve-year unsecured senior debt in the spring of 2009. By the end of 2009, the aver-age maturity of DnB NOR’s funding had increased from 2.7 to 3.0 years. The liquidity risk had been considerably reduced.

DnB NOR increased equity capital by approximately NOK 14 billion in December 2009 through a share issue with preferential rights for existing shareholders. It was an important step to strengthen the Group’s opportuni-ties to satisfy the ﬁ nancing needs of its customers, capitalise on new busi-ness opportunities and make it possible for DnB NOR to resume a normal dividend policy. The rights issue and enhancement of the Group’s capital base through retained earnings have made DnB NOR well positioned to satisfy the notiﬁ ed stricter capital adequacy requirements. The Group’s Tier 1 capital consists predominantly of ordinary equity.

DnB NOR chose to obtain new equity from the markets and not avail itself of the Norwegian State Finance Fund. This was because an ordinary share capital increase gave permanent capital on conditions which were attractive for shareholders. In addition, this solution enabled a more ﬂ exible employ-ment of the funds and greater ﬂ exibility in business operations.

iTraxx Europe Energy 5-year iTraxx Europe Industry 5-year 200

100

0 30 June

2007 31 Dec.2007 30 June2008 31 Dec.2008 30 June2009 31 Dec.2009

DnB NOR 5-year covered bonds DnB NOR 5-year senior unsecured 50

0

-50 30 June

(22)

(23)

> DnB NOR is Norway’s largest fi nancial services group,

offering customers a full range of products and services through

its national and international operations. By being helpful,

(24)

ORGANISATION AND MANAGEMENT

OF OPERATIONS

The business areas operate as independent proﬁ t centres and are respon-sible for customer relationships and for serving speciﬁ c customer segments and ensuring that the Group’s products are adapted to market require-ments. These responsibilities include customer relationship management, distribution and risk assessments in addition to product development, production and product pricing.

Central staff and support units carry out infrastructure tasks for the operative units as well as operational tasks providing cost efﬁ ciencies when undertaken for several business areas. In addition, they perform functions for governing bodies and group management. The business areas are able to inﬂ uence staff and support units by changing their demand patterns and requirements.

INTERNAL MANAGEMENT OF OPERATIONS IN 2009

Differentiated fi nancial and operational targets have been set for the various business areas to help the DnB NOR Group reach its targets. The business areas’ contributions to value creation in the Group are assessed by monitoring developments in economic profi t, defi ned as profi ts after write-downs and taxes less the calculated cost of capital based on capital allocated to each business area. In addition, return on capital, defi ned as profi ts after taxes relative to allocated capital, is one of the key fi nancial targets for the business areas. In the management of the business areas, allocated capital is based on DnB NOR’s model for calculating capital requirements for various risk categories. See further description under “Capital management and risk categories” on page 58.

Cooperation between the business areas is an important part of DnB NOR’s strategy. A wide range of products, services and distribution channels

enables the Group to offer customer solutions across business areas. DnB NOR’s ﬁ nancial management model and operational organisation facilitate sale of the entire range of products and services offered by the Group. For most types of transactions between the business areas, pricing is regulated by internal agreements generally based on market terms. For some transactions, however, income is recorded in more than one business area. Net income from transactions which require extensive cooperation between several units, where it is difﬁ cult to quantify the contribution made by each unit, is recorded in its entirety in all units involved in such transactions. Services provided by staff and support units are scaled according to the business areas’ demand, and intra-group services are charged according to use at market prices. Costs relating to the Group’s strategic initiatives, direct shareholder-related expenses and costs concerning the Group’s governing bodies are not charged to the business areas.

OPERATIONAL STRUCTURE

With effect from 1 July 2009, the Group’s operations in the regional net-work in Norway were restructured, whereby service to personal customers and small and medium-sized enterprises was organised under the Retail Banking business area. Responsibility for the largest corporate custom-ers and international operations was assigned to the business area Large Corporates and International. The reorganisation will enable the Group to utilise its wide range of products and services and expert skills in an opti-mal manner by coordinating activities in local markets and thus strengthen relations to customers in all Norwegian market segments. The reorgani-sation will also make it possible to capitalise on the size of the Group by coordinating and streamlining operations.

With effect from 1 July 2009, DnB NOR was organised into the operational business areas

Retail Banking, Large Corporates and International, DnB NOR Markets and Life and Asset

Management. The business areas operate as independent proﬁ t centres and have

responsibility for serving all of the Group’s customers and for the total range of products.

DnB NORD is regarded as a separate proﬁ t centre. Operational tasks and group services

are carried out by the Group’s staff and support units.

Marketing and Communications Corporate Centre

Retail Banking Large Cor-porates and International DnB NOR Markets Life and Asset Management Operations HR IT Group Finance and Risk Management DnB NOR DnB NORD

(25)

Retail Banking

Large Corporates

and International DnB NOR Markets

Life and Asset

Management DnB NORD

Income statement in NOK million 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Total income 18 753 17 288 8 591 8 431 7 243 5 685 3 562 2 902 2 242 2 468

Total operating expenses 10 185 9 620 1 806 2 021 1 913 1 749 2 211 2 153 2 589 1 704 Pre-tax operating profi t before write-downs 8 569 7 669 6 785 6 410 5 331 3 936 1 351 748 (347) 764

Net gains on fi xed and intangible assets 1 0 0 17 0 0 (13) 19

Write-downs on loans and guarantees 1 586 1 267 1 128 212 0 1 3 929 1 388

Pre-tax operating profi t 6 984 6 402 5 657 6 216 5 331 3 935 1 351 748 (4 289) (605) Average balance sheet items in NOK billion

Net lending to customers 1) ₇₁₃ ₆₆₄ ₃₇₂ ₃₂₉ ₈₄ ₇₅

Deposits from customers 1) ₃₆₈ ₃₅₃ ₂₂₇ ₁₉₆ ₂₁ ₂₂

Asset under management (end of period) 486 533

Key fi gures in per cent

Return on capital 2) _26.1 _23.6 _13.4 _17.4 _69.8 _58.0 _16.6 _3.2 _(34.4) _(5.8)

Cost/income ratio 3) _53.2 _55.1 _21.0 _24.0 _26.4 _30.8 _62.1 _74.2 _73.5 _63.7

Ratio of deposits to lending 51.6 53.1 61.2 59.6 25.6 29.4

1) Nominal values, including lending to and deposits from credit institutions respectively.

2) Return on capital is calculated on the basis of allocated risk-adjusted capital. The calculation is based on a tax-rate of 28 per cent for Retail Banking, Large Corporates and International and DnB NOR Markets, 20 per cent for DnB NORD and recorded tax for Life and Asset Management.

3) Cost/income ratio adjusted for impairment losses for goodwill.

3 935 7481 351 (605) (4 289) 4 000 2 000 0 (2 000) (4 000) (6 000)

Retail Banking Large Corporates and International

DnB NOR Markets

Life and Asset Management

DnB NORD

2008 2009

In order to ensure better coordination of the Group’s insurance offering to customers, all insurance operations, encompassing pension savings and life and non-life insurance, were organised in the same business area at the beginning of 2010. The business area Life and Asset Management thus changed its name to Insurance and Asset Management and took over responsibility for DnB NOR Skadeforsikring from Retail Banking.

DnB NORD, in which DnB NOR has a 51 per cent ownership interest, is fully consolidated in the accounts and is regarded as a separate profi t centre. On 30 December 2009, the Board of Directors of DnB NOR decided to initiate an evaluation of the DnB NORD cooperation. In accordance with the share-holder agreement, the evaluation period will end on 31 July 2010, after which each of the parties must inform the other party of its conclusion regarding

further cooperation. A possible outcome of the evaluation period is that one of the owners wishes to change the structure of or end the cooperation. The agreement also regulates the procedures to be followed if one of the owners chooses to exercise the option to buy out the other party. DnB NOR has a fi rst option to take over DnB NORD’s operations in the Baltic region, while NORD/ LB has a fi rst option to acquire the operations in Poland.

As part of the process of coordinating and streamlining operations, the central support units have to an increasing extent been given group responsibility for internal deliveries. Centralised support functions will ensure coordination, consolidation and professionalisation of deliveries across the various units in DnB NOR.

(26)

From 1 July 2009, responsibility for serving the Group’s 2.3 million personal customers and

some 100 000 Norwegian corporate customers was organised under Retail Banking.

The aim is that coordinating the service to these customer segments will help improve

customer satisfaction by making the services more accessible and by giving customers

high-quality fi nancial advisory services. Pre-tax operating profi ts were NOK 6 984 million

in 2009, an increase of NOK 582 million from 2008. There was a positive trend in volumes,

while non-performing and impaired commitments showed a satisfactory development.

RETAIL BANKING

Income statement in NOK million 2009 2008 Change

Net interest income 14 998 13 571 1 427

Other operating income 3 756 3 717 38

Total income 18 753 17 288 1 465

Operating expenses 10 185 9 620 565

Pre-tax operating profi t before write-downs 8 569 7 669 900

Net gains on fi xed assets 1 0 1

Net write-downs on loans 1 586 1 267 319

Pre-tax operating profi t 6 984 6 402 582

Average balance sheet items in NOK billion

Net lending to customers 713.3 664.1 49.2

Deposits from customers 367.7 352.5 15.2

Return on allocated capital 1) _{26.1 23.6}

Cost/income ratio 2) _{53.2 55.1}

Ratio of deposits to lending 51.6 53.1

1) Calculated on the basis of allocated risk-adjusted capital. 2) Cost/income ratio adjusted for impairment losses for goodwill.

(27)

FINANCIAL PERFORMANCE

The steep fall in interest rate levels from the autumn of 2008 and through the ﬁ rst half of 2009 contributed to maintaining the level of demand for housing loans in 2009. A lower level of activity among small and medium-sized enterprises resulted in more sluggish demand for long-term ﬁ nancing, lower building loan volumes and a reduction in drawdowns on overdraft facilities. Average lending increased by 7.4 per cent. Deposits showed a positive development, with an average increase of 4.3 per cent compared with 2008, primarily due to growth in the retail market. Covered bonds based on home mortgages in DnB NOR Boligkreditt were an important source of funding, supplementing customer deposits. At the end of 2009, 82 per cent of lending volume in Retail Banking was funded by deposits and covered bonds.

Increased risk pricing, the need to compensate for rising funding costs and temporary effects related to the fact that notifi cation periods for interest rate adjustments entailed a certain time lag before the changes were refl ected in customer interest rates, contributed to widening lending spreads relative to money market rates from 2008 to 2009. Corresponding temporary effects of notifi cation periods, combined with greater competi-tion for deposits, put signifi cant pressure on deposit spreads in 2009. Overall, there was a rise in margin income.

Net other operating income increased slightly from 2008. Housing sales in Norway improved during the year, giving higher income from real estate broking, and income from payment transfers also showed a rising trend. Operations in Sweden generated lower income in 2009.

Retail Banking recorded impairment losses for goodwill related to invest-ments in Sweden totalling NOK 202 million in 2009, which was due to both a new strategic direction and reduced activity resulting from the ﬁ nancial turmoil. Operating expenses excluding impairment losses for goodwill increased by 4.9 per cent from 2008. The increase was due to general wage growth, higher IT development costs, depreciation on operational leasing in DnB NOR Finans and the transfer of ﬁ nancial advis-ers from Norway Post. The Group’s cost programme helped reduce costs by NOK 175 million in 2009. The cost/income ratio, excluding impairment losses for goodwill, was reduced from 55.1 per cent in 2008 to 53.2 per cent in 2009.

The quality of the loan portfolio was sound. For retail customers, net write-downs were at a very low level, and the situation was also stable for corporate customers. Net write-downs relative to average net lending rose

from 0.19 per cent in 2008 to a continuing low level of 0.22 per cent in 2009. Average net impaired commitments amounted to NOK 4.7 billion in 2009, up from NOK 3.1 billion in 2008.

OPERATIONS

Retail Banking is responsible for serving personal customers and small and medium-sized enterprises in Norway. Operations are based on the brands DnB NOR, Postbanken and Nordlandsbanken, whereas credit cards are also distributed through external partners under the Cresco brand. The business area is divided into seven geographical divisions. In addition, Postbanken, DnB NOR Privatbank and Telephone and Online Banking are organised as separate divisions. The subsidiaries DnB NOR Boligkreditt, DnB NOR Finans, DnB NOR Eiendomsmegling, Postbanken Eiendomsmegling and DnB NOR Skadeforsikring, together with Svensk Fastighetsförmedling and SalusAnsvar in Sweden, are also part of the business area.

DnB NOR’s goal is to be the preferred and leading bank in Norway for small and medium-sized enterprises. Retail Banking supports this strategy by being both a local bank and a bank that offers companies access to all the expertise and solutions a large group can offer. Companies’ varied needs are met through a wide range of high-quality products and solutions among which customers can choose.

Retail Banking has a large customer base consisting of 2.3 million personal customers and some 100 000 corporate clients in Norway. At end-December 2009, 1.4 million customers had loyalty programmes and product packages. This number is rising, entailing that a growing number of customers choose to use a wider range of the Group’s products. DnB NOR Boligkreditt had a loan portfolio of NOK 334 billion at the end of 2009. The company is instrumental in securing the Group access to long-term funding through the issue of covered bonds. The credit rating agencies have given the bonds issued by DnB NOR Boligkreditt an AAA rating, and the good classiﬁ cation secures the bank access to lower priced funding and thus greater competitive power.

DnB NOR is the market leader in the Norwegian market and Retail Bank-ing had, on average, NOK 713 billion in loans and NOK 368 billion in deposits in 2009. The market share of total lending to wage earners was approximately 28.4 per cent at end-December 2009, whereas the market shares of deposits and total savings from wage earners were 32.4 and 35.0 per cent on the same date.

93 86 26 44 2 3 55 14 73 21 200 100 0 100 50 0 Mortgage within 60 per cent

of collateral value Mortgage between 60 and 80 per cent of collateral value Mortgage above 80 per cent of collateral value

31 Dec. 2009 31 Dec. 2008 31 Dec. 2009

31 Dec. 2008

PD 0.01 %–0.75 % PD 0.75 % –2.0 % PD 2.0 % – Net non-performing and impaired commitments Based on DnB NOR's risk classification system. The volumes represent the expected outstanding amount in the event of default 1)

(28)

(29)

surveys. More customer contact and competitive terms contributed to the positive trend. Information from frequent customer surveys will enable Retail Banking to respond swifter to customer needs and changed market conditions. The aim is to achieve a further improvement in customer sat-isfaction levels. Retail Banking will maintain a high activity level to defend and increase market shares and to achieve healthy growth based on proﬁ t-ability and acceptable risk. Increasing cross-sales and cooperation with other units in the Group are an important part of the strategy.

Norway’s largest distribution network

DnB NOR’s distribution network is by far the largest within banking and fi nance in Norway. An extensive physical presence, well-developed telephone and Internet banks and mobile banking solutions represent important assets for the Group. During 2009, customer needs for fi nancial advisory services, products and services were met through 163 DnB NOR branch offi ces, 37 SAGA investment centres, 50 corporate advisory cen-tres, DnB NOR Private Banking, telephone and online banking services, mobile banking services and in-store banking outlets at 932 locations. Nordlandsbanken had 16 branch offi ces. Postbanken had 39 customer service centres and also served customers through 208 post offi ces and 1 233 in-store postal outlets.

The mobile phone is DnB NOR’s fastest growing distribution channel of banking services. DnB NOR is at the forefront of mobile banking solu-tions and had approximately 550 000 users of SMS services at the end of the year. Account balance enquiries and alert services are the most popular SMS services. New and requested SMS services for corporate clients were launched in October 2009, and at the end of 2009, DnB NOR was the only bank in the Nordic region offering such services to the corporate market.

BankID on mobile phones is now available for all retail customers. The solution can be used to log on to the Internet bank and to confi rm several services. DnB NOR and Postbanken were the fi rst to offer an electronic signature solution for loans using BankID, where also co-borrowers can sign loans in the Internet bank. The service was launched on 2 November 2009, and as at 31 December, approximately 2 100 loans had been signed in this way. E-signing simplifi es and streamlines the loan process for both customers and the bank.

From 1 January 2009, DnB NOR became responsible for all banking services at Oslo Airport, an agreement which has a duration of ﬁ ve years. The branch ofﬁ ce was awarded the Oslo Airport Service Prize for 2009 for best service company at the airport. From 1 February 2010, DnB NOR has entered into an agreement to provide banking services at Trondheim Airport.

The subsidiary DnB NOR Finans is among Norway’s largest fi nance companies. In addition, the company has operations in both Sweden and Denmark . The main products are leasing, ICT equipment leasing, factoring, vehicle fi nancing and fl eet management under the brand name Autolease. DnB NOR Kort is responsible for credit card and consumer fi nance services in the DnB NOR Group. In addition, DnB NOR Kort is licensed to issue American Express personal customer cards in Norway. Through the establishment of DnB NOR Skadeforsikring, DnB NOR is well positioned to offer complete insurance solutions distributed through the

distributor of life and pension insurance, non-life insurance and banking products to members of associations and trade unions in Sweden.

Satisfi ed employees

DnB NOR conducts annual surveys of employee satisfaction. The survey shows that employees in Retail Banking are very satisﬁ ed with their workplace. Competent and motivated employees are an important prerequisite for success in the market. The business area’s employees are highly skilled within ﬁ nancial advisory services and have in-depth knowledge of the Group’s wide range of products, the local business community, various business sectors and risk assessment.

Competence development is a priority area, and a signiﬁ cant number of employees participated in a number of extensive skills upgrading initiatives, management development programmes and training within risk assess-ment, ethics and dilemmas in 2009.

The number of full-time positions in Retail Banking was 5 090 at the end of December 2009, with 4 660 full-time positions in Norway and 430 in international units. Ongoing streamlining measures have reduced staff numbers in operations in Norway.

FUTURE PROSPECTS

The Norwegian economy continues to be affected by the international downturn, but Norway has fared better through the recession than most other countries. The strong monetary and fi scal policy stimulus measures are working, credit markets are functioning better and the danger of bank-ruptcies due to insuffi cient credit is therefore reduced. However, capacity utilisation in the fi nancial services industry is at record-low levels and the number of new orders has fallen steeply, indicating weakened production into 2010. Low interest rate levels, subdued unemployment growth and a more positive future outlook contributed to rising housing prices through-out 2009, and a continued moderate increase is expected in 2010. The economic downturn is expected to affect operations in Retail Banking also in 2010. Stable demand for housing loans will contribute to lending growth, whereas loans to businesses are expected to remain at a stable level. Net write-downs in the corporate segment are expected to increase, but to remain within a normalised level.

(30)

The Group’s operations aimed at large Norwegian companies and all international banking

operations were organised under the business area Large Corporates and International

from 1 July 2009. Norwegian and international businesses are offered the Group’s wide

range of fi nancial services, and the business area will build good customer relationships

and offer the Group’s corporate customers fi nancial services adapted to the prevailing

market situation. In 2009, pre-tax operating profi ts were NOK 5 657 million, a decline

of 9.0 per cent from 2008 resulting from higher write-downs on loans. Volumes were

signifi cantly reduced throughout the year due to both a stronger Norwegian krone relative

to key currencies and lower market activity.

LARGE CORPORATES AND INTERNATIONAL

Income statement in NOK million 2009 2008 Change

Net interest income 6 066 6 097 (32)

Other operating income 2 525 2 334 191

Total income 8 591 8 431 160

Operating expenses 1 806 2 021 (215)

Pre-tax operating profi t before write-downs 6 785 6 410 375

Net gains on fi xed assets 0 17 (17)

Net write-downs on loans 1 128 212 916

Pre-tax operating profi t 5 657 6 216 (558)

Net lending to customers 371.8 329.2 42.6

Deposits from customers 227.4 196.3 31.1

Return on allocated capital 1) _{13.4 17.4}

Cost/income ratio 21.0 24.0

Ratio of deposits to lending 61.2 59.6

(31)

FINANCIAL PERFORMANCE

The general interest rate level in Norway was signifi cantly reduced through 2009, which contributed to a decline in net interest income of NOK 32 mil-lion from 2008. Ordinary operations generated an increase in net interest income of NOK 781 million, whereas the lower interest rate levels caused a reduction in income from allocated capital. Funding costs were high through the entire year, and it was necessary to increase lending spreads relative to the money market rate to cover these costs. Measured against the money market rate, lending spreads improved in all segments from 2008 and widened by an average of 0.31 percentage points from 2008 to 2009 for the business area as a whole. Deposit spreads narrowed by 0.13 percentage points compared with 2008, with a decline in all seg-ments. The narrowing in deposit spreads refl ected the fact that interest rates stabilised at a low level, while competition for deposits increased. Average lending to customers rose from 2008 to 2009, but declined by 17.6 per cent from the end of 2008 to the end of 2009. The main reason for the reduction was the strengthening of the Norwegian krone exchange rate against key currencies, in particular the US dollar. Exchange rate movements accounted for 9.6 percentage points of the total reduction in lending. Approximately 50 per cent of the business area’s loans were denominated in US dollars, and strategic priority areas such as energy and shipping had a signifi cant exposure in US dollars. DnB NOR’s strategy to maintain a low risk profi le in the portfolio served as a guiding principle for the granting of credit throughout 2009.

Average deposits from customers rose from 2008 to 2009, though there was a decline in deposits towards the end of 2009. Movements in the NOK exchange rate greatly affected deposit volumes.

Income from payment transfers showed a stable trend from 2008 to 2009. Cross-sales between Large Corporates and International and the Group’s product areas were affected by customers’ relatively low level of activity in 2009, and income fell somewhat from 2008. Cross-sales contributed NOK 1 268 million in net income to Large Corporates and International. Operating expenses and the number of full-time positions remained stable in 2009. The level of net write-downs on loans increased from 2008. Relative to average lending volumes, write-downs were 0.30 per cent, compared with 0.06 per cent in 2008.

The business area’s lending policy was in accordance with the Group’s strategy and desired risk profi le. The quality of the portfolio was satisfactory in all sectors, but there was a negative development through 2009 due to the general market conditions. A number of the business area’s custom-ers were affected by the consequences of the diffi cult fi nancial situation in 2009, and the scope of problem commitments increased.

OPERATIONS

Large Corporates and International assisted the Group’s largest corporate clients through a demanding year in 2009. Customer relationships based on

2 4 114 163 24 55 200 100 0 31 Dec. 2009 31 Dec. 2008

PD 0.01%–0.75% PD 0.75% –2.0% PD 2.0% – Net non-performing and impaired commitments

Based on DnB NOR's risk classification system. The volumes represent the expected outstanding amount in the event of default. 1)

Income statement in NOK million

Shipping, Offshore and Logistics International Corporates and Institutions Nordic Corporates Northern Europe Division Other Total Large Corporates and International

Net interest income 2 113 1 944 1 346 532 131 6 066

Other operating income 628 1 251 689 167 (211) 2 525

Total income 2 741 3 196 2 035 699 (80) 8 591

Opeating expenses 441 489 449 269 158 1 806

Pre-tax operating profi t before write-downs 2 300 2 706 1 587 431 (238) 6 785

Net gains on fi xed assets 0 0 0 0 0 0

Net write-downs on loans 474 210 394 38 12 1 128

Pre-tax operating profi t 1 826 2 496 1 193 392 (250) 5 657

Net lending to customers 147 83 83 51 9 372

(32)