FITCH AFFIRMS THE ROYAL BANK OF SCOTLAND GROUP AT 'BBB+'; ASSIGNS EXP'D 'A-(EXP)' IDR TO ADAM & CO

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1 FITCH AFFIRMS THE ROYAL BANK OF SCOTLAND GROUP AT 'BBB+'; ASSIGNS EXP'D 'A-(EXP)' IDR TO ADAM & CO Fitch Ratings-London-29 September 2017: Fitch Ratings has affirmed the Long- and Short- Term Issuer Default Ratings (IDRs) of The Royal Bank of Scotland Group plc (RBSG) at 'BBB +'/'F2'. The Rating Outlook is Stable. At the same time, Fitch has assigned Adam and Company PLC (Adam & Co) an expected Long-Term IDR of 'A-(EXP)', an expected Short-Term IDR of 'F2(EXP)' and an expected VR of 'bbb+(exp)'. The Rating Outlook on the expected Long-Term IDR is Stable. At the same time, Fitch has placed National Westminster Bank plc's (NatWest) 'BBB+' Long-Term IDR on Rating Watch Positive (RWP) and affirmed its Viability Rating (VR) at 'bbb+'. As part of the review, Fitch affirmed the ratings of RBSG's other main operating subsidiaries. A full list of rating actions is at the end of this rating action commentary. The rating action on NatWest and Adam & Co, which will become RBSG's two main UK-based ring-fenced banks from mid-2018, reflects Fitch's expectation that the two operating banks' Long- Term IDRs will be rated one notch above their VRs from mid-2018, when both banks should have sufficient debt buffers that rank junior to protect the banks' senior creditors from losses after a resolution of the group. Adam & Co's expected Long-Term IDR already reflects the one-notch uplift because Fitch assigns expected ratings at the level expected following the conclusion of the group's reorganisation. NatWest's Long-Term IDR has been placed on RWP because we expect to upgrade it by one notch on completion of the group's reorganisation, when we expect senior holdco debt will be downstreamed into NatWest in a manner that will effectively protect NatWest's external senior creditors. The affirmation of The Royal Bank of Scotland plc (RBS), which will be renamed NatWest Markets Plc and become RBSG's main non-ring-fenced bank, and the Stable Outlook reflects Fitch's expectation that the bank's IDR will not be affected by the changes to the group's structure in connection with complying with UK ring-fencing rules by The group has set up a new intermediate holding company, NatWest Holdings Limited (NWH), which will house a large majority of RBSG's operations inside its ring-fenced group. Adam & Co is currently a subsidiary of RBS, through NWH. In mid-2018, RBSG plans to transfer most of RBS's retail and commercial customers to Adam & Co, which will be renamed RBS. At the same time, RBS will be renamed NatWest Markets Plc and together with The Royal Bank of Scotland International Limited (RBSIL) will be the non-ring-fenced banks. KEY RATING DRIVERS IDRS, VRs, DERIVATIVE COUNTERPARTY RATING (DCR) AND SENIOR DEBT - RBSG, RBS, NATWEST AND ADAM & CO RBSG's VR and IDRs are equalised with the ratings of its main operating banks and are based on the group's consolidated financial profile, which is primarily driven by the group's retail and corporate banking operations. The ratings also reflect RBSG's role as a holding company, and take into account the absence of holding company double leverage. RBS's and NatWest's IDRs, senior debt rating and RBS's DCR are driven by their VRs. Fitch assigns common VRs to these two operating banks as they are managed as a group and are highly integrated. Adam & Co's expected VR is based on Fitch's expectation that Adam & Co and NatWest will be assigned common VRs when the group restructuring has been finalised. Adam

2 & Co's expected Long-Term IDR is rated one notch above its expected VR because Fitch expects that the buffer of qualifying junior debt (QJD) and debt issued to the holding company will be sufficient to protect the bank's external senior creditors from losses after a resolution by the time Fitch will assign final ratings to the entity, most likely in mid This expectation of sufficient debt buffers also drives the RWP on NatWest's Long-Term IDR and senior debt long-term rating. The Stable Outlook on RBS, which will become NatWest Markets and will be outside the ringfence, reflects Fitch's expectation that its Long-Term IDR will not benefit from any debt buffer. The VRs primarily reflect further improvements in the group's risk profile and Fitch's view that capitalisation provides a sizeable buffer for the remaining expected conduct charges and other nonoperating costs. The ratings also reflect the remaining challenges the group faces. These challenges include uncertainty over the timing and size of potential fine for legacy U.S. RMBS activities and the ongoing restructuring of the group. RBSG has resolved a number of outstanding issues during This included a GBP4.2 billion settlement with the U.S. Federal Housing Finance Agency (FHFA) in July 2017 and the approval from the European Commission under EU State aid rules that RBS no longer needs to divest Williams & Glyn. RBSG's capitalisation has a high influence on the VRs. The group's end-1h17 common equity Tier 1 (CET1) ratio improved to 14.8% (end-2016: 13.4%). The increase was driven by GBP939m attributable profit and RWA reductions in core businesses. The group's CET1 ratio still remains above its medium-term target of 13% and provides a cushion for the expected conduct and litigations charges, notably further U.S. RMBS-related fines. In Fitch's opinion, profitability is a key weakness and remains under significant pressure from high conduct and restructuring costs. The latter are mainly related to the restructuring of the corporate and investment banking business, expenses incurred to meet UK ring-fencing requirements, and the implementation of the group's transformation and simplification programme. Excluding these costs, we believe that the group's underlying business is profitable. However, depending on the timing and size of RMBS-related fines, Fitch expects the group to report losses in 2017 and possibly in In the longer term, we expect RBSG to generate less volatile and stronger profits if it manages to successfully execute its turn-around strategy. The group is set to benefit from a strong UK franchise where it has leading market shares within the SME, retail and medium-sized corporate segments. For now, the continuing restructuring of the group weighs on our overall assessment of the group's company profile, management and strategy relative to UK peers, all of which constrain the ratings. The proportion of impaired loans on its balance sheet is still higher than its UK peers, to a large extent because of weak asset quality in its Ireland-based operations, but the results of the 2016 Bank of England stress testing indicated that the asset quality of RBSG's core domestic portfolio would be resilient to a severe stress. At end-1h17, the group reported a 2.8% gross impaired loan ratio (end-2016: 3.15%) with the improvement primarily reflecting further disposals in Capital Resolution. A large portion of its problem assets are in Ireland, where residential mortgage loans remain part of its core activities but are significantly underperforming in terms of delinquencies and profitability. Fitch considers the group's funding balanced, with an improved match between the maturities of its assets and liabilities, and only moderate reliance on wholesale markets, and a large, high-quality liquidity buffer. The minimum requirement for own funds and eligible liabilities set by the Bank of England, equivalent to 23.5% of the group's RWAs by 2022, suggests that the group will be an active issuer of eligible debt, including senior debt issued by RBSG, over the next few years.

3 RBS's DCR is at the same level as the Long-Term IDR because derivative counterparties to have preferential status over other senior obligations in a resolution scenario. SUPPORT RATING AND SUPPORT RATING FLOOR - RBSG, RBS, NATWEST AND ADAM & CO Support Ratings (SR) and Support Rating Floors (SRF) reflect Fitch's view that senior creditors cannot rely on extraordinary support from the sovereign in the event they become non-viable. In our opinion, the UK has implemented legislation and regulations to provide a framework that is likely to require senior creditors participating in losses for resolving even large banking groups. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings of all subordinated debt and hybrid securities issued by RBSG companies are notched down from the common VR assigned to individual group companies, reflecting Fitch's assessment of their incremental non-performance risk relative to their VRs (up to three notches) and assumptions around loss severity (one or two notches). These features vary considerably by instrument. Subordinated debt with no coupon flexibility is notched down once from the VR for incremental loss severity. Legacy Upper Tier 2 subordinated debt is notched down three times (once for loss severity and twice for incremental nonperformance risk). Legacy Tier 1 and preferred stock is notched down either four or five times, dependent on incremental non-performance risk (twice for loss severity and either two or three times for incremental non-performance risk). Additional Tier 1 instruments (contingent convertible capital notes) are notched five times (twice for loss severity and three times for incremental nonperformance risk) given their fully discretionary coupon payment. SUBSIDIARY - RBS NV, RBSIL, RBSSI AND UBL The IDRs, DCR and SR of RBS Securities Inc. (RBSSI), the group's U.S. broker-dealer, are based on institutional support from the parent and the IDRs are equalised with RBSG's IDRs, reflecting Fitch's view that RBSSI's activities are core to the group's strategy, and that the ability to support RBSSI, relative to RBSG's financial resources, is easily manageable. No explicit guarantees or cross default provisions are present, but we believe that a default of RBSSI would cause serious reputational damage to RBSG's global franchise and operations. RBSSI's DCR is equalised with its Long-Term IDR. RBSIL's IDRs are equalised with RBSG's, reflecting Fitch's view of a high probability that RBSG would support it, if needed, mainly because we consider it core to the group. It is a fairly small, but wholly-owned and integrated deposit-gathering subsidiary of the group, whose default would have serious reputational implications for the wider group, in our opinion. Royal Bank of Scotland N.V.'s (RBS NV)'s IDRs and debt ratings are equalised with RBSG's, reflecting Fitch's view of a high probability that RBSG would support it, if needed. It is a fairly small, but wholly owned, integrated subsidiary of the group, akin to a division, whose default would in our opinion have serious reputational implications for the wider group. Ulster Bank Ltd's (UBL) IDRs are equalised with RBSG's, reflecting Fitch's view of a high probability that RBSG would support it, if needed. It is a fairly small, but wholly owned and integrated subsidiary of the group and a part of RBSG's UK personal and business banking division. The RWP on UBL's Long-Term IDR reflects Fitch's expectation that the IDR will benefit from a one-notch uplift when the group is reorganised as UBL will be a direct subsidiary of NatWest and remain within the ring-fenced group. RATING SENSITIVITIES

4 IDRS, VRs, DCR AND SENIOR DEBT - RBSG, RBS, NATWEST AND ADAM & CO RBSG's ratings remain constrained by uncertainty over the size and timing of the conduct fines it faces and by still material execution risk from restructuring the group. In Fitch's opinion, the group's IDRs and VRs could be upgraded only after these uncertainties are removed, if the group maintains good capitalisation and reaches sound recurring profitability. RBSG's ratings could be downgraded if conduct costs erode capitalisation without plans to restore it swiftly, or if litigation or reputation risk proves particularly disruptive to the group's franchise and business model. RBSG's VRs and IDRs, and those of its subsidiaries, including Adam & Co's expected ratings, are also sensitive to a material worsening of underlying earnings and asset quality if the economic environment deteriorates substantially in the UK. We expect to rate NatWest's and Adam & Co's Long-Term IDR one notch above their common VRs when the group's reorganisation has been completed (Adam & Co will be renamed Royal Bank of Scotland at that point) and expect to upgrade NatWest's Long-Term IDR to one notch above the VR at that time. Fitch estimates that RBSG's consolidated QJD buffer was equal to about 8.7% of risk-weighted assets (RWA) at end-june At the same date, holdco senior debt was equal to about 3.8% of RWA. Fitch expects this debt to be downstreamed to the opcos, including the two ring-fenced banks, in a manner that protects these opcos' senior creditors in case of a resolution. Based on Fitch's expectation of a regulatory intervention point and post-resolution capital needs, we believe that a qualifying debt buffer, including QJD and senior holdco debt, of above 9% of RWA could be required to restore viability after a resolution, and the two ring-fenced banks' Long-Term IDR would benefit from a one-notch uplift above the VR if the qualifying debt buffer is maintained at above this level, which Fitch expects. We expect to affirm RBS's IDRs when the group's restructuring has been completed and when RBS will change name to NatWest Markets. We expect to withdraw the bank's VR at that point because we do not expect that NatWest Markets will have a meaningful standalone franchise that could exist without the membership of the parent. NatWest Markets' IDRs will likely be driven by institutional support from its parent, RBSG, and will likely be equalised with its parent's to reflect the subsidiary's core and integral role in the group. NatWest Markets' ratings will primarily be sensitive to changes in the parent's IDR, with which they are equalised. They will also be sensitive to changes in the parent's propensity to provide support, which could arise if its role in the group changes, which Fitch does not expect. NatWest Markets' IDRs will also be sensitive to a weakening of the parent's ability to provide support, which could be caused by a sharp increase in the size of the subsidiary or in the size of its potential liquidity to cover any increase in collateral requirements. RBSG's IDR would be downgraded if there was a material increase in double leverage at the holding company, which we do not expect. RBS's DCR is primarily sensitive to changes in RBS's Long-Term IDR. SUPPORT RATING AND SUPPORT RATING FLOOR - RBSG, RBS, NATWEST AND ADAM & CO Any upgrade of the SR and upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support its banks. While not impossible, in Fitch's opinion this is highly unlikely. The RWP on RBS's SR reflects Fitch's expectation that the SR will be upgraded to '2' when the group restructuring has been completed and when the SR will be based on institutional support rather than sovereign support. At that stage, the SRF will be withdrawn.

5 SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital ratings are primarily sensitive to changes in the VRs of the issuers or their parents. The securities' ratings are also sensitive to a change in their notching, which could arise if Fitch changes its assessment of the probability of their non-performance relative to the risk captured in the issuers' VRs. This may reflect a change in capital management in the group or an unexpected shift in regulatory buffer requirements, for example. The ratings are also sensitive to a change in Fitch's assessment of each instrument's loss severity, which could reflect a change in the expected treatment of liability classes during a resolution. SUBSIDIARY - RBS NV, RBSIL, RBSSI AND UBL RBS NV, RBSIL, RBSSI and UBL's ratings are primarily sensitive to a change in Fitch's assessment of RBSG's propensity to support them, which we do not expect, or to a change in RBSG's IDRs. Fitch expects to upgrade UBL's Long-Term IDR when the group reorganisation has been finalised because we believe that UBL's close integration within the ring-fenced group means that its IDR should remain equalised with its parent's, NatWest, which we expect to upgrade to reflect the available debt buffers. The rating actions are as follows: The Royal Bank of Scotland Group plc Viability Rating affirmed at 'bbb+' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' Senior unsecured debt affirmed at 'BBB+'/'F2' Subordinated debt affirmed at 'BBB' Subordinated debt (US780097AM39) affirmed at 'BBB-' Innovative, Non-innovative Tier 1 and Preferred stock (US780097AH44; XS ; US780097AE13) affirmed at 'BB' Innovative, Non-innovative Tier 1 and Preferred stock affirmed at 'BB-' Contingent Convertible Capital Notes affirmed at 'BB-' The Royal Bank of Scotland plc Viability Rating affirmed at 'bbb+' Support Rating '5'; placed on Rating Watch Positive Support Rating Floor affirmed at 'No Floor' Derivative Counterparty Rating: affirmed at 'BBB+(dcr)' Senior unsecured debt affirmed at 'BBB+'/'F2' Senior unsecured market linked securities affirmed at 'BBB+emr' Subordinated Lower Tier 2 debt affirmed at 'BBB' Subordinated Upper Tier 2 debt affirmed at 'BB+' National Westminster Bank plc Long-Term IDR 'BBB+'; placed on Rating Watch Positive Viability Rating affirmed at 'bbb+' Support Rating affirmed at '5'

6 Support Rating Floor affirmed at 'No Floor' Long-term senior unsecured debt 'BBB+'; placed on Rating Watch Positive Short-term senior unsecured debt affirmed at 'F2' Subordinated Lower Tier 2 debt affirmed at 'BBB' Subordinated Upper Tier 2 debt affirmed at 'BB+' Adam and Company Plc Expected Long-Term IDR assigned at 'A-(EXP)'; Stable Outlook Expected Short-Term IDR assigned at 'F2(EXP)' Expected Viability Rating assigned at 'bbb+(exp)' Expected Support Rating assigned at '5(EXP)' Expected Support Rating Floor assigned at 'No Floor(EXP)' Royal Bank of Scotland NV Support Rating affirmed at '2' Senior unsecured debt affirmed at 'BBB+' Senior unsecured market linked securities affirmed at 'BBB+emr' Subordinated debt affirmed at 'BBB' Royal Bank of Scotland International Ltd Support Rating affirmed at '2' RBS Securities Inc. (rated under Fitch's Global Non-Bank Financial Institutions Rating Criteria) Support Rating affirmed at '2' Derivative Counterparty Rating: assigned at 'BBB+(dcr)' Ulster Bank Limited Long-Term IDR 'BBB+' placed on Rating Watch Positive Support Rating '2'; placed on Rating Watch Positive Contact: Primary Analysts Christian Scarafia (RBSG, RBS, NatWest, RBS NV, RBSIL, UBL) Senior Director Fitch Ratings Limited 30 North Colonnade London E14 5GN Michael Dodge (RBSSI) Associate Director Fitch Ratings, Inc. 33 Whitehall Street New York, NY Secondary Analysts (RBSG, RBS, NatWest, RBS NV, RBSIL)

7 Aabid Hanif Associate Director Christian Scarafia (RBSSI) Senior Director Marc Ellsmore (UBL) Associate Director Committee Chairperson Olivia Perney Guillot Senior Director Media Relations: Elaine Bailey, London, Tel: , elaine.bailey@fitchratings.com. Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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