Regulations relating to the Norwegian State Finance Fund.

Laid down by the Ministry of Finance on 8 May 2009 pursuant to Section 5 and Section 10 of the Act relating to the Norwegian State Finance Fund.

Section 1
(1) The purpose of the Norwegian State Finance Fund is to contribute Tier 1 capital, on an interim basis, to Norwegian banks in order to strengthen the banks and to improve the ability of the banks to keep up ordinary lending activities.

(2) The Norwegian State Finance Fund may make capital contributions to Norwegian banks through the acquisition of hybrid Tier 1 securities or Tier 1 preference capital instruments issued by a Norwegian bank or by the parent company of a finance group. Acquisition by the Fund shall take place upon application from each individual bank, and be governed by an agreement between the Fund and the bank.

(3) The terms and conditions governing a capital contribution from the Finance Fund shall be designed such as to safeguard the financial interests of the State through a reasonable trade-off between expected return and risk on the part of the State.

(4) If the Norwegian State Finance Fund acquires a hybrid Tier 1 security or Tier 1 preference capital instrument issued by the parent company of a finance group, the capital shall be passed on to the bank. The Norwegian State Finance Fund may stipulate more detailed terms and conditions to achieve this. The Norwegian State Finance Fund shall stipulate terms and conditions that prevent the transfer of contributed capital to other companies in a group in violation of the purpose of the Norwegian State Finance Fund. 

(5) In addition, the Norwegian State Finance Fund may acquire shares or primary capital certificates issued by a Norwegian bank or by the parent company of a finance group.

(6) In these Regulations the term "equity" shall have the same meaning as is attributed thereto in Section 4 – 2, Sub-section 1, Items 21 and 22, of the Regulations of 16 December 1998 relating to the Annual Accounts, etc., of Banks, Finance Companies and the Parent Companies thereof (the Regulations relating to the Annual Accounts of Banks, etc.). The terms "contributed share capital" and "contributed primary-capital-certificate capital" shall have the same meaning as is attributed thereto in Section 4 – 2, Sub-section 1, Item 21, of the Regulations relating to the Annual Accounts of Banks, etc., and the term "accrued equity" shall have the same meaning as is attributed thereto in Section 4 – 2, Sub-section 1, Item 22, of the Regulations. In case of an agreement for a capital contribution to a savings bank that has not issued any primary capital certificates, the amount of the primary capital of the bank shall be specified in the agreement upon the conclusion of such agreement.

(7) In these Regulations the term "Tier 1 capital" shall have the same meaning as is attributed thereto in Section 3 of the Regulations of 1 June 1990 No. 435 relating to the Measurement of the Own Funds of Financial Institutions, Clearing Houses and Investment Firms.

(8) In these Regulations the term "managerial personnel" shall have the same meaning as is attributed thereto in Section 6-16a of the Public Limited Companies Act, cf. Section 7-31b of the Accounting Act.

Section 2
(1) The Norwegian State Finance Fund may, upon application, and provided that the Financial Supervisory Authority of Norway ("Kredittilsynet") and the bank confirm that the bank meets the Tier 1 capital ratio requirement with a good margin, also when likely developments in the near future are taken into consideration, contribute to the enhanced capitalisation of a Norwegian bank as follows:
a) the capitalisation of a bank with a Tier 1 capital ratio of less than 7 pct. may be enhanced to a Tier 1 capital ratio of 10 pct.;
b) the capitalisation of a bank with a Tier 1 capital ratio of no less than 7 pct. and no more than 10 pct. may be enhanced by up to 3 percentage points, but not to a Tier 1 capital ratio exceeding 12 pct.; and
c) the capitalisation of a bank with a Tier 1 capital ratio in excess of 10 pct. may be enhanced by up to 2 percentage points, as measured by its Tier 1 capital.

(2) Banks applying for a capital contribution that will bring the Tier 1 capital ratio in excess of 12 pct. shall document their need for the capital contribution from the Norwegian State Finance Fund to be able to contribute to the purpose of the scheme as outlined in Section 1.

(3) Banks applying for a capital contribution representing more than 2 percentage points Tier 1 capital shall document their need for the capital contribution from the Norwegian State Finance Fund to be able to contribute to the purpose of the scheme as outlined in Section 1.

Section 3
(1) The final time limit for the submission of applications for capital contributions is 30 September 2009.

(2) An application for a capital infusion shall specify what type of capital instrument is applied for, and the amount of the proposed infusion. The application shall present the financial position and future prospects of the bank. The following documentation shall be appended, to the extent possible:

  • The annual accounts, annual report and auditor's report of the bank for 2008. If the applicant forms part of a group, the consolidated accounts shall also be appended.
  • The most recent quarterly accounts, as audited and approved by the auditors.
  • Adopted budget for 2009.
  • Presentation of the findings from the bank's internal risk and capital assessment process pursuant to Section 2-9b of the Financial Institutions Act (Pillar II)
  •  Forecast as to future compliance with the capital adequacy requirements (both Pillar I and Pillar II).
  • Plan covering the activities of the bank for the coming three years. Particular details shall be provided in relation to the bank's plans for the provision of loans to the business sector and to households.

The Fund may require additional information to the extent that the Fund deems this to be necessary for purposes of the proper processing of the application.

(3) The Norwegian State Finance Fund processes applications for capital contributions on an ongoing basis, and shall accord priority to applications from banks that are important from the perspective of financial stability. The Norwegian State Finance Fund shall ensure that necessary assessments are made, in respect of a bank that has applied for a capital infusion, for assigning the bank to one of three risk classes, cf. Section 10, and to ensure that the purpose of the scheme is achieved. A bank that has applied for a capital infusion shall inform the Norwegian State Finance Fund if there are any material changes to the financial circumstances of the bank during the period prior to the implementation of the capital infusion.

Section 4
(1) The Norwegian State Finance Fund shall conclude an agreement with each individual bank or, alternatively, the parent company thereof. In addition to the conditions precedent to the capital contribution, the agreement shall govern limitations in the scope for making dividend distributions and other distributions, reporting requirements and restrictions on the salaries and other remuneration of managerial personnel. If the Norwegian State Finance Fund is to conclude an agreement for a capital contribution with a bank that is a subsidiary within a group, the Fund shall also conclude an agreement with the parent company of such group. Necessary amendments to the Articles of Association shall be implemented by banks receiving capital contributions, prior to the contribution being made. This shall apply correspondingly if an agreement is concluded with a parent company. 

Section 5
(1) The Norwegian State Finance Fund shall make capital contributions conditional upon banks that have issued shares being barred from distributing dividends to the shareholders in an amount exceeding 50 pct. of the distributable equity of the banks pursuant to Section 8-1 of the Private Limited Companies Act/Public Limited Companies Act, cf. Section 3, Sub-section 2, second sentence, of the Commercial Banks Act. Savings banks that have issued primary capital certificates shall be barred from distributing dividends in an amount exceeding 50 pct. of the amount that may be distributed as dividends on the primary-capital-certificate capital pursuant to Section 2, Sub-section 2, of the Savings Bank Act, cf. Section 14 of the Regulations of 7 February 2001 No. 108 relating to Primary Capital Certificates of Savings Banks, Credit Unions and Mutual Insurance Companies.

(2) The Norwegian State Finance Fund shall also make capital contributions conditional upon banks being barred from distributing dividends in an amount exceeding 50 pct. of such portion of the annual profit according to the annual accounts for the most recent financial year as is attributable to share capital or the primary-capital-certificate capital. Interest on the hybrid Tier 1 security referred to in Section 11 is recognised as a cost for purposes of calculating profits. The dividend limit pursuant to the present Section shall be calculated net of the distribution of dividends/interest on preference capital as mentioned in Section 12.

(3) In addition, the Norwegian State Finance Fund shall make capital contributions conditional upon dividends on other shares not representing, under any circumstance, a larger portion of the book equity of the bank, net of the capital contribution from the Finance Fund, than the average interest and dividends on the capital contribution made by the Finance Fund to the bank. In savings banks that have issued primary capital certificates, dividends to other holders of primary capital certificates shall not represent a larger portion of the capital of the holders of the primary capital certificates than the average interest and dividends on the capital contribution made by the Finance Fund. 

(4) The Norwegian State Finance Fund shall stipulate more detailed conditions pertaining to the purchase of own shares by the bank, group contributions, the distribution of gifts from savings banks, as well as other distributions, and may set out additional dividend restrictions in each individual agreement. 

Section 6
(1) The Norwegian State Finance Fund shall require quarterly reporting of lending, lending guidelines, cost developments, etc. The Norwegian State Finance Fund shall have a contractual right to collect such information as is deemed necessary by the Fund.

Section 7
(1) The following restrictions on the salaries and other remuneration of managerial personnel shall be set out in the agreement concluded by the Norwegian State Finance Fund with each individual bank:

  1. the salaries and other benefits of managerial personnel shall not be increased prior to 31 December 2010;
  2. for managerial personnel with a contractually fixed salary in excess of NOK 1.5 million, no payment shall be made in respect of any bonus accrued in 2009 or 2010. For managerial personnel with a fixed salary of less than NOK 1.5 million, there can over the same period be paid a bonus of up to 20 pct. of the fixed salary, but the sum total of overall payments shall not exceed NOK 1.5 million;
  3. for the period after 31 December 2010, the salary and other remuneration terms shall be in conformity with the Government Managerial Salary Guidelines dated 8 December 2006;
  4. managerial personnel shall not receive shares or similar on favourable terms, and the banks shall refrain from initiating new share option programmes or extending or renewing existing programmes;
  5. new agreements on pensions and severance pay shall be prepared in conformity with  the Government Managerial Salary Guidelines dated 8 December 2006;
  6. it shall not be permitted to accumulate bonus that is accrued, but not paid out, during 2009 or 2010. This means that it will not be possible to have bonus accrued during these years paid out in subsequent years.

(2) The Norwegian State Finance Fund shall stipulate, in each individual agreement, who shall be classified as the managerial personnel of each individual bank, parent company and, if applicable, other company within the group. The Norwegian State Finance Fund may grant exemptions from the restrictions in special cases, hereunder in cases where the remuneration is primarily bonus-based.

Section 8
(1) The Norwegian State Finance Fund shall make capital contributions conditional upon them being used in conformity with the purpose of the scheme, not being used contrary to the purpose thereof, and upon the bank refraining from exploiting the capital contribution in its marketing or for purposes of implementing aggressive commercial strategies.

Section 9
(1) The Norwegian State Finance Fund may also stipulate other conditions precedent to the capital contribution.

Section 10
(1) The Norwegian State Finance Fund shall assign each bank to one of three risk classes, based on objective criteria. Assignment to a risk class shall remain fixed for the term of the capital contribution. Banks with an external credit rating from a recognised rating agency shall be assigned to the following risk classes:

Risk class

1

2

3

Rating

AA- or better

From A- to A+

BBB+ or lower

or similar under another classification system

or similar under another classification system

or similar under another classification system

(2) Banks without an external credit rating from a recognised rating agency may be assigned to one of the three risk classes by comparing these banks with rated banks in terms of a number of underlying factors, hereunder Tier 1 capital ratio, total return, composition and credit quality of the lending portfolio, deposit-to-loan ratio, losses and risk exposure.

Section 11
(1) A hybrid Tier 1 security used for the infusion of Tier 1 capital from the Norwegian State Finance Fund shall be designed as an instrument that can be approved as Tier 1 capital, with a nominal value equal to the amount paid in.

(2) A reduction in the value of a hybrid Tier 1 security from the Norwegian State Finance Fund may only be effected through a write-down for purposes of covering a loss recognised in the annual accounts during ongoing operations, following a write-down of the contributed share capital of a bank that has issued shares, following a write-down of the contributed primary-capital-certificate capital of a bank that has issued primary capital certificates, following a write-down of the primary capital of a savings bank that has not issued primary capital certificates, and following a write-down of the preference capital used for the infusion of Tier 1 capital from the Norwegian State Finance Fund, but prior to the write-down of Tier 2 capital. Corresponding priorities shall apply in case of winding-up. A hybrid Tier 1 security as mentioned shall be accorded the same priority as any other hybrid Tier 1 security.

(3) If the Tier 1 capital ratio of the issuing bank falls below 5 pct., or the capital adequacy ratio of the issuing bank falls below 8 pct., the value of a hybrid Tier 1 security as mentioned shall be written down for purposes of covering a loss recognised in the annual accounts during ongoing operations that cannot be covered from the accrued equity or the share premium reserve, with the same priority (pro rata) as the write-down of the contributed share capital of a bank that has issued shares, with the same priority (pro rata) as the write-down of the contributed primary-capital-certificate capital of a bank that has issued primary capital certificates, and with the same priority as the write-down of the preference capital used for the infusion of Tier 1 capital from the Norwegian State Finance Fund. If it is permissible to write down other hybrid Tier 1 security capital, there shall at the same time be made a proportional write-down of such capital. 

(4) Only if the share capital or the primary-capital-certificate capital has been written down in its entirety shall the value of a hybrid Tier 1 security as mentioned be written down with final effect. Any other write-down of the value of a hybrid Tier 1 security as mentioned shall be reversed upon a profit being recognised in the annual accounts. Share capital or primary-capital-certificate capital shall not benefit from any dividends until any write-down on a hybrid Tier 1 security as mentioned has been reversed to the original nominal value.

(5) The Norwegian State Finance Fund shall have a preferential right to a non-cumulative claim for annual interest, which shall be conditional upon there being a profit and upon the capital adequacy ratio being no less than 0.2 percentage point higher than the minimum capital adequacy ratio required at any given time. The interest shall be covered until it has either been paid in full or the profit has been exhausted. The interest rate shall be stipulated in the agreement on the basis of the interest rate on Norwegian government debt, either an interest rate with a five-year lock-in period or an interest rate with a 6-month lock-in period, with a fixed mark-up. The mark-up shall be

  • 5.0 percentage points for a bank in risk class 1
  • 5.5 percentage points for a bank in risk class 2
  • 6.0 percentage points for a bank in risk class 3

(6) The interest is recognised as a cost in the accounts of the banks, and shall be covered until it has either been paid in full or the profit has been exhausted. Following any write-down, interest shall be computed on the written-down amount and any reversed amount.

(7) The hybrid Tier 1 security may be redeemed throughout its term. Redemption shall take place at par value, and is conditional upon permission being granted by Kredittilsynet. The interest rate shall increase by 1 percentage point four year after issuance, and by a further 1 percentage point five years after issuance, in order to provide redemption incentives. The Norwegian State Finance Fund shall not transfer a hybrid Tier 1 security as mentioned to a third party until five years have elapsed since the date of issuance.

Section 12
(1) A preference capital instrument used for the infusion of Tier 1 capital from the Norwegian State Finance Fund shall be designed as an instrument without voting rights that can be approved as core Tier 1 capital. In a limited company, the preference capital shall be contributed as preference share capital. In a savings bank that is not organised as a limited company, the preference capital may be contributed as preference primary capital certificates. The nominal value of the capital contribution shall be equal to the amount paid in. 

(2) A reduction in the value of preference capital contributed by the Norwegian State Finance Fund may only be effected through a write-down for purposes of covering a loss recognised in the annual accounts during ongoing operations that cannot be covered from the accrued equity and the share premium reserve. If the preference share capital is to be reduced, it shall be written down with the same priority (pro rata) as the write-down of other contributed share capital of the bank. Correspondingly, the preference capital of savings banks shall be written down with the same priority (pro rata) as the write-down of the contributed primary-capital-certificate capital of a bank that has issued primary capital certificates, and with the same priority (pro rata) as the write-down of the primary capital of a savings bank that has not issued primary capital certificates. Corresponding priorities shall apply in case of winding-up of the bank. 

(3) The Norwegian State Finance Fund shall have a preferential right to a non-cumulative claim for a fixed annual dividend calculated on the basis of an interest rate determined at the time of concluding the agreement, which right shall be conditional upon there being a profit and upon the capital adequacy ratio being no less than 0.2 percentage point higher than the minimum capital adequacy ratio required at any given time, and also conditional upon the distribution of such dividends being permitted under the relevant provisions of company law. The claim for dividends shall be determined on the basis of the general guidelines laid down by the ESA, and shall be covered until it has either been paid in full or the profit has been exhausted. Following any write-down of the Tier 1 preference capital instrument, dividends shall be computed on the written-down amount. If a bank has received Tier 1 capital through both a hybrid Tier 1 security as mentioned in Section 11 and a Tier 1 preference capital instrument as mentioned in the present Section, the order of priority between the interest on the hybrid Tier 1 security and the dividends on the Tier 1 preference capital instrument shall be determined in the agreement.

(4) The dividends shall be determined on the basis of the interest rate on Norwegian government debt, either an interest rate with a five-year lock-in period or an interest rate with a 6-month lock-in period, with a fixed mark-up. The mark-up shall be

  • 6.0 percentage points for a bank in risk class 1
  • 6.5 percentage points for a bank in risk class 2
  • 7.0 percentage points for a bank in risk class 3

(5) The bank may choose to redeem the Tier 1 preference capital instrument when three years have elapsed since the issuance thereof. Redemption is conditional upon permission being granted by Kredittilsynet. The method for calculating the redemption price shall be specified in the agreement, cf. Section 13.

(6) After five years the preference capital shall automatically be converted to ordinary shares/primary capital certificates, to the extent that it has neither been previously redeemed, nor is redeemed in connection with conversion. The method for calculating how many shares the Norwegian State Finance Fund shall receive upon the conversion of preference share capital shall be specified in the agreement, cf. Section 13. Corresponding provisions shall apply to the automatic conversion of the preference capital of a bank that is not a limited company. The method shall provide the bank with incentives for redeeming the Tier 1 preference capital instrument prior to the conversion thereof.

(7) The Norwegian State Finance Fund shall agree a right (option) for the Finance Fund to effect the conversion of the preference capital, during the term thereof, into ordinary shares or primary capital certificates, if the preference capital contributed by the Fund represents a significant portion of book equity. The Norwegian State Finance Fund shall specify in the agreement with each individual bank or parent company what constitutes a significant portion. The significant portion threshold shall be no higher than 50 pct. The method for calculating how many shares the Norwegian State Finance Fund shall receive upon the conversion of preference share capital shall be specified in the agreement, cf. Section 13. Corresponding provisions shall apply to the conversion of the preference capital of a bank or parent company that is not a limited company. The Norwegian State Finance Fund may in special cases refrain from agreeing a right of conversion pursuant to the present Sub-section.

(8) The Norwegian State Finance Fund may agree a right (option) for the bank to effect the conversion of the preference capital, during the term thereof, into ordinary shares or primary capital certificates if the book equity of the bank or parent company, excluding the preference capital, has been written down (lost) by 20 pct. or more relative to the value thereof at the time of the preference capital being paid in. The Norwegian State Finance Fund shall specify this percentage in the agreement with each individual bank or parent company. The method for calculating how many shares the Norwegian State Finance Fund shall receive upon the conversion of preference share capital shall be specified in the agreement, cf. Section 13. Corresponding provisions shall apply to the conversion of the preference capital of a bank or parent company that is not a limited company. 

(9) The agreement shall include provisions on adjustments to reflect modifications to the company capital that influence the trading price without affecting the value of the equity of the bank, e.g. share splits, bonus issues, etc.

(10) Planned equity transactions on the part of the issuer shall be reported to the Norwegian State Finance Fund well ahead of their deliberation by the general meeting. The Norwegian State Finance Fund may stipulate conditions precedent to the equity transaction.

(11) Upon an increase in the share capital of a bank or a parent company by way of subscription for shares against payment in cash, the preference capital contributed by the Norwegian State Finance Fund shall have a pre-emptive right to the new shares, equivalent to the pre-emptive right of other shareholders, in proportion to their existing holdings of the shares/preference capital of the company. A corresponding provision shall apply if the Norwegian State Finance Fund has contributed preference capital to a bank or parent company that has issued primary capital certificates.

Section 13
(1) The method for calculating how many shares the Norwegian State Finance Fund shall receive upon the conversion of preference share capital into ordinary shares shall be determined at the time of concluding the agreement. The correct number of shares may be achieved, if applicable, by writing down the value of the preference share capital prior to conversion. A corresponding provision shall apply to the conversion of preference capital in a bank or parent company that is not a limited company.

(2) There shall also be agreed a method for calculating how the preference capital may be redeemed (redemption value). The redemption value shall not be less than the par value. The redemption value shall be agreed as a percentage of the nominal value of the capital contribution. The redemption value may alternatively be calculated by reference to market prices, book equity and/or fair value. To stimulate redemption, the redemption value shall increase in years 4 and 5.

(3) The method for calculating the redemption value and the potential gain of the Norwegian State Finance Fund shall be in a reasonable relationship to how conversion is calculated and the potential loss accepted by the Norwegian State Finance Fund.

(4) It may be agreed, as far as concerns banks that are owned by a parent company that has issued market-traded equity instruments, that the Norwegian State Finance Fund shall receive shares of the parent company through a private placement, instead of shares of the bank.

Section 14
(1) The Norwegian State Finance Fund shall ensure that the terms and conditions governing the capital contribution are complied with.

(2) If one or more terms or conditions are not complied with, the Norwegian State Finance Fund may implement such measures as are deemed appropriate for safeguarding the interests of the Finance Fund and for ensuring that the purpose of the capital contribution, as well as the terms and conditions governing the same, are conformed to. The Norwegian State Finance Fund may also make the capital contribution subject to additional terms and conditions.

(3) If there is reason to believe that terms or conditions governing a capital contribution will not be complied with, the Norwegian State Finance Fund may implement measures as mentioned above even if no terms or conditions have yet been violated.

(4) The agreement with each individual bank and/or parent company shall include provisions that safeguard the rights of the Finance Fund pursuant to the present Section.

Section 15
(1) These Regulations shall enter into force on 15 May 2009.