Credit Opinion: Bank Nederlandse Gemeenten N.V.

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1 Credit Opinion: Bank Nederlandse Gemeenten N.V. Global Credit Research - 14 Mar 2014 The Hague, Netherlands Ratings Category Moody's Rating Outlook Stable Bank Deposits Aaa/P-1 Bank Financial Strength A Baseline Credit Assessment aaa Adjusted Baseline Credit Assessment aaa Issuer Rating Senior Unsecured Aaa Aaa Commercial Paper P-1 Contacts Analyst Phone Jan Skogberg/London David Rubinoff/London Key Indicators Bank Nederlandse Gemeenten N.V. 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 [1]Avg/CAGR Total assets (EUR bn) Total assets (USD bn) Total capital funds (EUR bn) Shareholders' equity % total assets Tier 1 ratio (%) Return on average assets (%) Recurring earnings power (%) Net interest margin (%) Cost/income ratio (%) [1] Compound annual growth rate for total assets and total capital Opinion SUMMARY RATING RATIONALE The Aaa long-term and P-1 short-term ratings with stable outlook of Bank Nederlandse Gemeenten N.V. (BNG Bank) reflect the bank's (i) role as the largest lender to the Dutch public sector; (ii) good standing in capital markets and Central Bank access; (iii) solid financial fundamentals and prudent risk management; and (iv) some non-solvency-free lending, although the bulk of lending carries a zero risk weighting. Unlike Nordic peers, BNG Bank does not have a contractual guarantee from its key stakeholders or a comfort letter from the national government. However, Moody's believes it is highly likely that the Dutch national government would support BNG Bank in a stress scenario given the latter's mandate to fund the Dutch local government sector.

2 Credit Strengths Credit strengths for BNG Bank include: - Strong franchise in the Netherlands for public-sector lending - Ownership structure (50%-owned by the central government and 50%-owned by the local government sector) emphasises BNG Bank's importance to the Dutch public sector - Good liquidity position combined with ability to repo securities and zero risk-weighted loans with the European Central Bank - Prudent risk management, including a low appetite for counterparty risks Credit Challenges Credit challenges for BNG Bank include: - 8% of BNG Bank's long term lending portfolio at end 2012 is not zero risk weighted, which includes loans to privatised companies and public-sector utilities owned by Dutch local governments. In many cases, BNG Bank has recourse to collateral if the borrowers encounter financial distress - 2% of liquidity portfolio at market value consists of structured securities rated non-investment grade - Leverage ratio is below the 3% that is likely to come into force under Basel III. BNG Bank targets a 3% leverage ratio by 2017 Rating Outlook On 7 March 2014, the Government of the Netherland's rating outlook was changed to stable from negative. Given the direct and indirect linkages between the sovereign and BNG Bank, the outlook on BNG Bank's ratings was also changed to stable. What Could Change the Rating - Down A downgrade of the Netherlands' sovereign rating would likely result in a downgrade of BNG Bank's rating. A weakening of ownership or support structure, a narrower mandate to fund the Dutch public sector or a weaker standing in capital markets could also exert downward pressure on BNG Bank's ratings. Issuer Profile Bank Nederlandse Gemeenten was established in 1914 to give local governments access to cost-effective funding. Today BNG Bank is the largest public-sector lender in the Netherlands with a balance sheet of EUR billion (30 June 2013). DETAILED RATING CONSIDERATIONS The rating assigned to BNG Bank reflects the application of Moody's Joint Default Analysis (JDA) rating methodology for government related issuers (GRIs). In accordance with this methodology, Moody's first establishes the baseline credit assessment (BCA) for the entity and then considers the likelihood of support coming from the national government to avoid an imminent default by BNG Bank, should this extreme event ever occur. Baseline Credit Assessment BNG Bank's BCA of Aaa reflects the following factors: Institutional Framework BNG Bank's bylaws restrict its ownership to the Dutch public sector. The central government holds a 50% stake in the bank, with the remaining 50% spread between Dutch municipalities, provinces and a district water board. This ownership structure has been stable since 1925 and is unlikely to change given BNG Bank's unchanged mandate to act as a lender to the Dutch public sector.

3 BNG Bank's importance as provider of cost-effective lending to the Dutch public sector has been emphasised in recent years. Despite market volatility, BNG Bank has consistently been able to lend to the Dutch public sector at advantageous rates, given its low funding cost compared to commercial banks. BNG Bank's market share of solvency-free lending to local governments, housing associations and healthcare institutions is in excess of 70% of all requested loan quotes in In 2012, long-term lending increased by a modest 1.4% or EUR 1.2 billion. During the first half of 2013 outstanding lending increased only slightly. In contrast, between year-end 2007 and year-end 2012 total gross lending increased by more than EUR 24 billion. Moody's believes BNG Bank will likely maintain its leading position in lending to public-sector entities in the Netherlands given its advantageous funding cost. Approximately 1% of BNG's loan book is exposure to European countries, including small amounts of lending to customers in Portugal and Spain. Moreover, lending and other below investment grade exposures amount to approximately 21% of BNG Bank's equity (31 December 2013). Exposure to foreign lending is limited to 15% of the loan book. Moody's expects foreign lending to remain a small percentage of total lending, given the financial challenges facing some European countries. Financial Performance Like other government-related specialised lenders, BNG Bank must generate sufficient profits to grow capital in line with its portfolio expansion. However, it must also balance this growth against the provision of efficient, lowcost funding to local governments and their related sectors. BNG Bank has recorded relatively stable net income during the previous five years. Net income rose to EUR 332 million in 2012 from EUR 256 million in 2011, largely due to value adjustments related to financial instruments, as net interest income increased only slightly. Moody's expects stable net income in the medium term given that BNG Bank's business model is unlikely to change. The most recent results (30 June 2013) support this notion. BNG Bank's net interest margin (NIM) is adequate at 42 bps as it continues to benefit from advantageous funding rates despite recent volatility in the financial markets. Its NIM is comparable with its peers as of year-end Like other specialised lenders, BNG Bank's costs are low relative to total assets. Costs consist mainly of staff expenses and other administrative expenses and have remained below 7 bps of average assets during the previous five years. BNG Bank's capitalisation is adequate in relation to its low risk assets. Its Tier 1 ratio stood at 23% at 30 June 2013 compared with 22% at year-end BNG Bank's leverage ratio of 2% (30 June 2013) is robust relative to its peers. In 2011, BNG Bank reduced its dividend payout ratio to 25% from 50% in order to achieve its 3% leverage ratio target by Debt and Liquidity BNG Bank relies on capital markets for its financing. It employs a diversified funding strategy by issuing debt in multiple currencies and markets, to a wide array of investors. This diversified strategy is prudent and similar to the one used by its specialised lender peers. Basel III regulations will introduce a net stable funding ratio (NSFR), which compares the amount of available stable funding with required stable funding. BNG Bank already meets the 100% minimum which is anticipated to come into force. BNG Bank maintains a large liquidity portfolio which mainly consists of highly rated securities. 82% of the portfolio consists of securities in the Aaa to A rating range. A large part of the liquidity portfolio is invested in government debt, bonds with government guarantees and covered bonds. 13% of investments are in the Baa rating range and 5% of investments rated non-investment grade. BNG Bank was compliant with the liquidity coverage ratio (LCR) in both 2012 and The minimum requirement is 100% and BNG Bank reported 221% and 150% during the two years, respectively. BNG Bank can repo a large part of its securities and its zero risk-weighted lending with the European Central Bank (ECB). Governance and Management The highest decision-making authority within BNG Bank is its nine-member supervisory board. The board is diversified with members having experience from the finance sector, the national government, and local

4 governments. BNG Bank has a thorough process for recruiting its supervisory board; members are evaluated on their performance and are not re-elected automatically. The supervisory board is responsible for appointing the executive board, which currently consists of three members. These three individuals decide on all matters which are significantly important for BNG Bank. In addition, all departments within the bank report to the executive board. BNG Bank uses derivatives to hedge all currency risks and assumes limited interest-rate risks. At year-end 2012, a 200 bps parallel shift in the yield curve would have translated into a negative EUR 263 million market value movement, which equals approximately 10% of equity. BNG Bank only enters into derivative agreements with externally rated counterparties. It has signed ISDA and CSA agreements with its counterparties, which are well known financial institutions. Terms include daily valuation and transfer of collateral. Extraordinary Support Considerations Moody's assigns a very high likelihood of extraordinary support from the national government, which is reflected in the importance of the local government sector to the overall economy of the Netherlands and BNG Bank's role as the principal financier to those local governments. Moody's also assigns a very high default dependence between BNG Bank and the Dutch central government given the strong links between the two. ABOUT MOODY'S SUB-SOVEREIGN RATINGS National and Global Scale Ratings Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings." The Moody's Global Scale rating for issuers and issues allows investors to compare the issuer's/issue's creditworthiness to all others in the world, rather than merely in one country. It incorporates all risks relating to that country, including the potential volatility of the national economy. Baseline Credit Assessment Moody's baseline credit assessment incorporates the Government Related Issuer's (GRI) intrinsic credit strength and accounts for all aspects of the entity's existing (or anticipated) activities, including benefits (such as regular subsidies or credit extension) and/or detriments associated with the government relationship. In effect, the baseline credit assessment reflects the likelihood that a GRI would require extraordinary support. Extraordinary Support Extraordinary support is defined as action taken by a supporting government to prevent a default by a Government Related Issuer (GRI) and could take different forms, ranging from a formal guarantee to direct cash infusions to facilitating negotiations with lenders to enhance access to needed financing. Extraordinary support is described as either low (0-30%), moderate (31-50%), strong (51-70%), high (71-90%) and very high (91-100%). Default Dependence Default dependence reflects the likelihood that the credit profiles of two obligors may be imperfectly correlated. Such imperfect correlation, if present, has important diversifying effects which can change the joint-default outcome. Intuitively, if two obligors' default risks are imperfectly correlated, the risk that they would simultaneously default is smaller than the risk of either defaulting on its own. In the application of joint-default analysis to GRIs, default dependence reflects the tendency of the GRI and the supporting government to be jointly susceptible to adverse circumstances leading to defaults. Since the capacity

5 of the government to provide extraordinary support and prevent a default by a GRI is conditional on the solvency of both entities, the more highly dependent -- or correlated -- the two obligors' credit profiles, the lower the benefits achieved from joint support. In most cases GRIs demonstrate moderate to very high degrees of default dependence with their supporting governments, which reflects the existence of institutional linkages and shared exposure to economic conditions that draw credit profiles together. Default dependence is described as either low (30%), moderate (50%), high (70%) and very high (90%) Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATION") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY'S CREDIT RATINGS OR MOODY'S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON

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