Volksbank Wien AG. Update following full-year results. CREDIT OPINION 8 May Update

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1 CREDIT OPINION 8 May 218 Volksbank Wien AG Update following full-year results Update Summary We assign Baa1(stable)/P-2 deposit ratings to Volksbank Wien (VBW). Furthermore, we assign a Baseline Credit Assessment (BCA) and Adjusted BCA and A2(cr)/P-1(cr) Counterparty Risk Assessments (CR Assessments). Volksbank Wien AG Domicile Austria Long Term Debt Not Assigned Long Term Deposit Baa1 Type LT Bank Deposits - Fgn Curr Outlook Stable Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Contacts Bernhard Held, CFA VP-Sr Credit Officer bernhard.held@moodys.com Mark C Jenkinson Associate Analyst mark.jenkinson@moodys.com Carola Schuler MD-Banking carola.schuler@moodys.com The BCA reflects VBW's moderate asset risk, adequate capitalisation, weak profitability and strong liquidity profile. At the same time, the BCA takes into account the ongoing, but near final, significant restructuring of the Austrian Volksbanken sector as well as challenges that the bank and the Verbund member banks face from the low interest rate environment. In assigning VBW ratings, the central organization of Austria's cooperative VolksbankenVerbund, we base our opinion on consolidated financial statements of the cooperative group because of the statutory mutualist support framework, codified in the Austrian banking act, and the cohesion and solidarity within the Verbund, as demonstrated by a contractual mutual obligation to support each member institution in case of need. Exhibit 1 Rating scorecard - Key Financial Ratios Volksbank Wien AG (BCA: ) Median -rated banks 16% 2% 14% 28% 1.2% 12% 24% 1% 2% 8% 17.5% 6% 4% 16% 12% 8% 4.2% 6.1% 2% % 4% % -.1% -2% -4% Asset Risk: Problem Loans/ Gross Loans Capital: Tangible Common Equity/Risk-Weighted Assets Solvency Factors (LHS) Profitability: Net Income/ Tangible Assets Funding Structure: Market Funds/ Tangible Banking Assets Liquid Resources: Liquid Banking Assets/Tangible Banking Assets Liquidity Factors (RHS) Note: Volksbank Wien AG's Key Financial Ratios are calculated on the basis of the consolidated financial statements of the cooperative group. Asset Risk and Profitability ratios reflect the average for the period 215 to 217. Source: Moody's Financial Metrics Liquidity Factors Alexander Hendricks, CFA Associate Managing Director alexander.hendricks@moodys.com VBW s ratings reflect: (1) the bank's BCA and Adjusted BCA; and (2) the results of our Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by the different liability classes in resolution, which results in one notch of rating uplift for the bank's deposit ratings from its Adjusted BCA. Solvency Factors RATINGS

2 Credit strengths» Very sound funding profile benefiting from a large deposit base and moderate dependence on market funds» Adequate capitalisation but limited ability to retain capital» VBW s BCA is supported by its Strong+ Macro Profile Credit challenges» Moderate asset and tail risks underpinned by low level of problem loans, but real estate sector concentrations exist» Sector-wide profitability is challenged by low interest rates and restructuring costs Outlook» The stable outlook on VBW s ratings reflects our expectation of stability in the bank's and the Verbund s implied creditworthiness, the existing mutualist support framework, including the cohesion and solidarity within the Verbund, as well as immaterial changes to its liability structure over the month outlook horizon. Factors that could lead to an upgrade» An upgrade of VBW's ratings could be triggered following: (1) an upgrade of the bank's BCA; and/or (2) increased rating uplift from our LGF analysis due to a reduction of the expected loss severity following a shift in its funding structure, for example through further significant issuance of instruments that absorb losses prior to deposits.» Upward pressure on VBW's BCA would be prompted by (1) a lowering of the Verbund's industry concentration risks; (2) a significant improvement of the sector's capital ratios; and () a meaningful and persistent strengthening of recurring earnings without compromising the risk profile.» VBW's deposit ratings could be upgraded if the volume of subordinated instruments increases significantly relative to the Verbund's tangible banking assets. This could result in additional notches of uplift resulting from our LGF analysis. Factors that could lead to a downgrade» A downgrade of VBW's ratings could be triggered following a downgrade of the bank's BCA; and/or (2) a reduction in rating uplift resulting from our LGF analysis.» Downward pressure on VBW's BCA could arise from: (1) a weakening of the Macro Profile of Austria; (2) a weakening of the Volksbanken sector's capitalisation and asset quality; and/or () a meaningful weakening of the strong funding profile.» Further, a support scenario for individual member banks, in which necessary funds significantly compress the sector's overall capitalisation, could exert downward pressure on the rating. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2 8 May 218

3 Key Indicators Exhibit 2 Volksbank Wien AG (Consolidated Financials) [1] Total Assets (EUR billion) Total Assets (USD billion) Tangible Common Equity (EUR billion) Tangible Common Equity (USD billion) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross Loans / Due to Customers (%) CAGR/Avg Note: The increase in VBW's total assets from 214 to 215 is a result of the transfer of assets from the former central organisation Oesterreichische Volksbanken AG (VBAG, now renamed immigon portfolioabbau ag) in July 215. [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [] Basel III - fully-loaded or transitional phase-in; LOCAL GAAP [4] May include rounding differences due to scale of reported amounts [5] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [6] Simple average of periods presented for the latest accounting regime. [7] Simple average of Basel III periods presented Source: Moody's Financial Metrics Exhibit Oesterreichischer Volksbanken-Verbund (Consolidated Financials) [1] Total Assets (EUR billion) Total Assets (USD billion) Tangible Common Equity (EUR billion) Tangible Common Equity (USD billion) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross loans / Due to customers (%) Avg Note: The decrease in the Verbund's todal assets from 214 to 215 is a result of the demerger of the former central organisation Oesterreichische Volksbanken AG (VBAG, now renamed immigon portfolioabbau ag) in July 215. [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [] Basel II; IFRS [4] IFRS reporting periods have been used for average calculation [5] Compound Annual Growth Rate based on IFRS reporting periods [6] Basel III - fully-loaded or transitional phase-in & IFRS reporting periods have been used for average calculation. Source: Moody's Financial Metrics 8 May 218

4 Profile VBW is the central organization of Austria's cooperative banking sector, the Volksbanken-Verbund. The Verbund member banks benefit from a statutory mutualist support framework, codified in the Austrian banking act, and the cohesion and solidarity within the Verbund, as demonstrated by a mutual obligation to support each member institution in case of need The Volksbanken-Verbund member banks are predominantely active in Austria, mainly providing financial services to retail and smalland-medium sized corporate customers. By year-end 217, the Verbund held consolidated assets of 25. billion and reported a net income of 61.2 million. For more information, please refer to our Austrian Banking System Profile. VBW s domestic exposures determine its Strong+ Macro Profile VBW and the Verbund are predominantly active in Austria and the assigned Strong+ Weighted Macro Profile is set at the Strong+ Macro Profile of Austria. A deterioration of the bank's Macro Profile may negatively affect its financial profile, ceteris paribus. Detailed credit considerations We assess the bank on the basis of consolidated financial statements of the Austrian Volksbanken-Verbund. This approach takes into consideration the statutory mutualist support framework, codified in the Austrian banking act, and the cohesion and solidarity within the Verbund, as demonstrated by a mutual obligation to support each member institution in case of need. As a result, the Verbund member banks, with the exception of VBW, are exempt from reporting individual capital and other regulatory ratios to the European Central Bank, its supervisor. The high level of cooperation within the Verbund is further demonstrated by VBW s role as central bank institution which provides ample control rights to the Vienna-based bank, including centralized management for capital, funding, liquidity, and risk management. Solid funding profile benefiting from a large deposit base, low dependence on market funds The Verbund's funding profile strongly supports VBW s BCA, which is reflected in our a1 Funding Structure score for the bank. The score also captures the high granularity of the sector's deposits, which we consider generally more stable than those of large, institutional deposits. As of 1 December 217, deposits accounted for 82% of the Verbund s total liabilities (216: 82%), mainly including current accounts and savings deposits from retail clients, and its gross loan-to-deposit ratio was 95% (216: 97%). The Volksbanken-Verbund exhibits a low dependence on market funds, as underpinned by issued covered bonds, liabilities to banks, senior unsecured debt, and subordinated debt which in total represented around 7% of its balance sheet s assets at end-217. However, during 218 and beyond, we expect that the Verbund s dependence on market funding will gradually increase in particular considering the regulatory minimum requirements for own funds and eligible liabilities. We consider VBW s and the Verbund's liquidity well-suited to cover their short-term liquidity needs. Our assigned Liquid Resources score of includes no adjustments and reflects the high quality of the Verbund s financial security portfolio that also positively contributes to the sector s favorable Liquidity Coverage Ratio (LCR) that has been above 12% since February 217. Low level of problem loans but real estate concentrations exist Despite some concentrations to the Austrian real estate market, VBW's moderate to low level of problem loans underpins the bank's sound asset risk profile. Exposures from the Verbund's lending activities are the group's main risk driver as demonstrated by gross loans which accounted for 78% of the Verbund's total assets at year-end 217. The sector s total credit exposure of 28. billion, as of year-end 217, was concentrated on the banks' SME clients ( 1. billion), among which the real estate sector dominated with a total exposure of 5.2 billion. In addition, 1. billion of exposures related to the construction industry. While VBW s and the Verbund's real estate exposures are spread across multiple Austrian regions, we believe the high concentrations to real estate renders the bank and the Verbund vulnerable to a downturn in the domestic real estate markets. At end-december 217, the Verbund s level of problem loans slightly decreased to 4.% compared with 4.% at year-end 216 (215: 4.4%, 214: 7.%). The substantial reduction since 214 reflects the restructuring of the Austrian Volksbanken sector, including the separation from immigon portfolioabbau ag (immigon) in July 215. The problem loan ratio in 214, excluding VBAG, was 5.1%. Over the medium-term, we expect a further improvement of the asset quality, as the Verbund continues to consolidate or dispose of noncore entities. 4 8 May 218

5 Further, we expect that credit conditions in Austria will remain stable, supporting the favourable credit conditions for the Verbund's domestic exposures which are predominately geared towards small and medium-sized (SME) and retail customers which represented around 92% of its overall lending activities as of year-end 217. Our assigned Asset Risk score of captures the above mentioned strengths, but also includes a negative adjustment for real estate concentration risks. The adjustments also take into account the higher NPL ratios we observe for VBW s and the Verbund s SME exposures, which are mitigated by their very granular loan portfolios and moderate loan-to-values. Adequate capitalization but limited ability to retain capital We consider VBW's and the Verbund's capital ratios adequate for their risk profiles which are supportive for the bank's BCA. At December 217, the Verbund s transitional Common Equity Tier 1 (CET1) ratio was flat at compared with 216 (215: 12.1%), reported under the Capital Requirements Regulation and Directive (CRR/CRD IV). In absolute terms, the CET1 capital declined marginally to 1.64 billion in 217. The minor reduction mainly resulted from deconsolidation effects of previous member banks in the first half of 217. We believe that the Verbund s capital ratios will improve once the restructuring measures are concluded (expected in the second quarter of 218), thereby also increasing the buffer to regulatory minima. However, while no direct links exist anymore to immigon, the Verbund is obliged to repay the remainder of the original million of participation rights (Genussrechte) until end-22 which were granted to the Republic of Austria (Aa1 stable) as a compensation for rescuing the former central bank organisation VBAG. We believe the repayment will materially limit the Verbund s ability to internally generate capital until 22, and thus limits its ability to grow its balance sheet. Our baa1 Capital score for VBW reflects these observations. Sector-wide profitability is challenged by low interest rates and restructuring costs We believe that the Volksbanken sector s profitability will continue to face the challenge of low interest rates, persistently high competition in the Austrian banking system, and continued restructuring and integration costs. The ongoing competition for market share may additionally pressure margins, while rising loan loss charges, from a currently very low level, could further constrain the sector's profitability prospects. Upon a successful implementation of the sector s comprehensive restructuring, which we expect in the second quarter of 218, we believe efficiency gains may only evolve over the medium-term. For year-end 217, the Verbund reported a pre-tax profit of 4 million versus a loss of 84 million as of end-december 216 driven by higher interest (+4.7%, year-over-year) and trading income (+62.%), significantly lower loan loss provisions (-5.6%) and supported by lower administrative expenses (-4.8%). The Verbund reported a net income of 61 million (216: loss of 79 million) benefitting from a tax gain of 21 million (216: 5 million). Net interest income for 217 increased to 44 million from 42 million in 216. The initial recognition of effective interest from customer loans of the member banks resulted in the release of 24 million accruals. Higher lending levels (+2.%) were not able to compensate for margin pressures which lead to a 4.5 million lower net interest result from current operations. Overall loan loss charges of 45 million for 217 (216: 92 million; 215: 5 million) were lower due to provision releases. Profitability was structurally supported by staff cost reductions of 18 million. We believe that the sector is particularly challenged by the persistent low rate environment combined with its high cost base; net interest income accounts for around 6% of the group's total revenues. Based on our calculations, the sector s cost-to-income ratio decreased to 84% in 217 from 85% at year-end 216. Because we expect further restructuring costs for 218, and meaningful revenue synergies will only arise from mid-218 onwards, we consider the Verbund s medium-term profitability prospects to be weak. This view is reflected in our assigned Profitability score of b May 218

6 Support and structural considerations Loss Given Failure analysis The Volksbanken-Verbund currently represents a conglomerate of nine regional Volksbanken and one specialised financial institution in Austria, leaving only one Volksbank to be consolidated to reach the target structure of eight regional Volksbanken. The Verbund is considered a banking group in the context of the European CRR and, therefore, it is regulated as a group. This means that with the exception of the central institution Volksbank Wien AG all of its affiliated institutions are exempt from certain regulations for banks or other financial institutions. As a result, the EU's Bank Recovery and Resolution Directive (BRRD), which we consider to be an Operational Resolution Regime, does apply to the Verbund, but not to its member entities individually. We therefore apply VBW's LGF analysis on the basis of the Verbund's consolidated liabilities, considering the risks faced by the different debt and deposit classes across the liability structure at failure. We assume residual tangible common equity of % and losses postfailure of 8% of tangible banking assets, a 25% run-off in junior wholesale deposits and a 5% run-off in preferred deposits. These are in line with our standard assumptions. Because of the Verbund s clear focus on retail banking we assume that only a small percentage (1%) of VBW's deposit base can be considered junior (or institutional) deposits. For VBW s deposits, our LGF analysis indicates a low loss-given-failure, leading to a one-notch uplift above the bank's Adjusted BCA. For VBW's subordinate debt, our LGF analysis indicates a high loss-given-failure, leading us to position the rating one notch below the bank's Adjusted BCA. Government support considerations In contrast to banks in other EU countries and reflective of government measures in Austria implemented since 214, we assign a low level of support for the senior unsecured debt and deposit ratings of Austrian banks. As a consequence, we do not include any beneficial rating impact for government support in VBW's long-term deposit rating ratings. This view also takes into account the VolksbankenVerbund s relatively low importance to the domestic deposit-taking market. Counterparty Risk Assessment CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default; and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. VBW's CR Assessment is positioned at A2(cr)/P-1(cr). The Counterparty Risk Assessment (CR Assessment) assigned to VBW is positioned three notches above the bank s Adjusted BCA of, based on the cushion against default provided to the senior obligations represented by the CR Assessment by subordinated instruments. CR assessments for banks subject to a going-concern ORR, reflect the loss absorption that capital and more junior debt instruments provide in the bank s liability structure. In Austria, counterparty obligations rank above senior unsecured debt and junior deposits, but not above preferred deposits Methodology and scorecard Methodology The principal methodology we used in rating VBW was the Banks methodology published in April May 218

7 About Moody's Bank Scorecard Our Bank Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity. Rating methodology and scorecard factors Exhibit 4 Oesterreichischer Volksbanken-Verbund Macro Factors Weighted Macro Profile Strong + Factor Historic Macro Ratio Adjusted Score Credit Trend Assigned Score Key driver #1 Key driver #2 Solvency Asset Risk Problem Loans / Gross Loans 4.2% baa1 Sector concentration Expected trend Capital TCE / RWA 1.2% a2 baa1 Capital retention Expected trend Profitability Net Income / Tangible Assets -.1% caa1 b1 Expected trend Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets 6.1% aa a1 Deposit quality Expected trend Liquid Resources Liquid Banking Assets / Tangible Banking Assets 17.5% Quality of liquid assets Expected trend baa at-failure (EUR million) 4,47 19,91 17,827 1, ,22 % at-failure Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA a2 a Aa1 baa1-baa Balance Sheet in-scope (EUR million) 2,887 2,85 18,765 2, ,22 % in-scope Other liabilities Deposits Preferred deposits Junior Deposits Senior unsecured bank debt Dated subordinated bank debt Junior subordinated bank debt Preference shares (bank) Equity Total Tangible Banking Assets 7 1% 8 May % 82.% 74.1% 8.2%.6% 2.1%.%.%.% 1% 17.2% 76.6% 7.4% 6.2%.6% 2.1%.%.%.% 1%

8 Debt class Counterparty Risk Assessment Deposits Dated subordinated bank debt Instrument class Counterparty Risk Assessment Deposits Dated subordinated bank debt De Jure waterfall De Facto waterfall Notching LGF Assigned Additional Preliminary LGF notching Rating Instrument Sub- Instrument SubDe Jure De Facto Notching Guidance notching Assessment volume + ordination volume + ordination vs. subordination subordination Adjusted BCA a2 (cr) 5.6% 6.% baa1 5.6%.6% 5.6%.6% baa Loss Given Failure notching 1-1 Additional Preliminary Rating Notching Assessment a2 (cr) baa1 baa Government Support notching Local Currency Rating A2 (cr) Baa1 Baa Foreign Currency Rating -Baa1 -- Source: Moody's Financial Metrics Ratings Exhibit 5 Category VOLKSBANK WIEN AG Outlook Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Subordinate -Dom Curr Moody's Rating Stable Baa1/P-2 A2(cr)/P-1(cr) Baa Source: Moody's Investors Service 8 8 May 218

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10 Contacts Bernhard Held, CFA VP-Sr Credit Officer 1 8 May 218 Mark C Jenkinson Associate Analyst