Sign in Subscribe
Moody's Investors Service Inc.

Moody's Affirms Luminor Bank's Ratings, Flags Governance Concerns

Strategic Insights

— 2 min read

Moody's Investors Service has announced the affirmation of all ratings and assessments of Luminor Holding AS and Luminor Bank AS, except for the change in the outlook on Luminor Bank's senior unsecured and long-term deposit ratings from stable to negative. This decision follows Luminor's announcement of a miscalculation in its regulatory capital metrics, which led to an overreporting of its capital position.

The affirmation of Luminor's ratings reflects the bank's sound asset quality metrics, healthy liquidity buffers, and a solid deposit franchise. The baa2 Baseline Credit Assessment (BCA) reflects the bank's well-diversified pan-Baltic lending portfolio and strong capitalization. Additionally, Moody's expects Luminor's capitalization to remain strong, maintaining capital ratios well above its prudential capital requirements.

However, Moody's has changed the outlooks on Luminor Bank's senior unsecured and long-term deposit ratings to negative from stable due to concerns about the bank's risk management processes and oversight. The error could prompt regulatory action that may negatively impact the bank's capitalization and/or profitability. This change reflects identified weaknesses in compliance and reporting, alongside unchanged governance considerations related to concentrated private-equity ownership and delayed management execution on strategy.

Key Takeaways:

  • Moody's has affirmed all ratings and assessments of Luminor Holding AS and Luminor Bank AS, except for the change in the outlook on Luminor Bank's senior unsecured and long-term deposit ratings from stable to negative.
  • The affirmation of Luminor's ratings reflects the bank's sound asset quality metrics, healthy liquidity buffers, and a solid deposit franchise.
  • Moody's expects Luminor's capitalization to remain strong, maintaining capital ratios well above its prudential capital requirements.
  • The error led to an understatement of Luminor's common equity tier 1 (CET1) and total capital ratios by 0.7 and 0.8 percentage points, respectively, as of year-end 2024.
  • The correct CET1 and total capital ratios were 19.5% and 22.1% for year-end 2024, and 19.2% for year-end 2023.
  • Luminor's CET1 and total capital ratios rose in first quarter 2025 to 21.9% and 27.0%, respectively, both boosted by the implementation of Basel IV and the latter also by its inaugural additional tier 1 capital issuance.

Statistics:

  • 3.2% - understatement of Luminor's total risk weighted assets.
  • 0.7 and 0.8 percentage points - understatement of Luminor's common equity tier 1 (CET1) and total capital ratios, respectively, as of year-end 2024.
  • 19.5% and 22.1% - correct CET1 and total capital ratios for year-end 2024.
  • 19.2% - correct CET1 ratio for year-end 2023.
  • 21.9% and 27.0% - Luminor's CET1 and total capital ratios in first quarter 2025.

Sources:

  • [1] Moody's Ratings, "Moody's Affirms Luminor Bank AS and Luminor Holding AS ratings," May 15, 2025.
  • [2] Moody's Investors Service, "Banks," November 2024, available at https://ratings.moodys.com/rmc-documents/432741.
  • [3] Moody's Investors Service, "Rating Methodologies," available at https://ratings.moodys.com.

Read more