Banks. Bayerische Landesbank. Germany. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

Transcription

1 Germany Full Rating Report Ratings Foreign Currency Long-Term IDR A- Short-Term IDR F1 Viability Rating bbb Support Rating 1 Support Rating Floor WD Key Rating Drivers Support Drives Ratings: s (BayernLB) Issuer Default Ratings (IDRs) are based on strong support from its owners, the state of Bavaria, Bavaria's savings banks and ultimately Germany s savings banks group, Sparkassen Finanzgruppe (SFG, A+/Stable). Fitch Ratings institutional support assumptions reflect the view that the owners consider their investment in BayernLB to be long-term and strategic. Derivative Counterparty Rating Sovereign Risk Foreign Currency Long-Term Rating Local Currency Long-Term Rating Outlooks Long-Term Foreign-Currency IDR Sovereign Long-Term Foreign- Currency IDR Sovereign Long-Term Local- Currency IDR A- (dcr) AAA AAA Stable Stable Stable Stronger Company Profile: BayernLB s Viability Rating (VR) reflects improved asset quality and capitalisation, which has been driven by further reduction of legacy assets. Underlying profitability remains modest, but the bank has generated sufficient capital and repaid the remaining EUR1 billion outstanding state aid to Bavaria. BayernLB hence fulfilled all state-aid commitments with the European Commission (EC). Scope for Strategic Change: The conclusion of the EC state-aid procedures remove remaining constraints on BayernLB s strategies as the bank had to abstain from undertaking some business under the agreement. We expect that any change to the bank s strategy will be gradual and that the bank will not increase its risk appetite. Financial Data Dec 16 Dec 15 Total assets (USDm) 223, ,851 Total assets (EURm) 212, ,711 Total equity (EURm) 9,987 9,669 Net interest margin (%) Cost/income ratio (%) Operating ROAE (%) LICs/gross loans (%) NPL ratio (%) Fitch Core Capital ratio (%) CET1 ratio (transitional) (%) Related Research - Ratings Navigator (May 2017) Fitch Affirms 's IDR at 'A-'/Stable, VR at 'bbb' (May 2017) Fitch Affirms Three Southern Landesbanken After Sector Review (May 2017) 2017 Outlook: German Banks (December 2016) Analysts Roger Schneider, CIIA roger.schneider@fitchratings.com Sebastian Schrimpf, CFA sebastian.schrimpf@fitchratings.com Earnings Remain Moderate: BayernLB s pre-tax profit increased by 10% in 2016, which was largely attributable to the performance of the non-core unit (NCU), where loan impairments fell significantly. The core segments performance benefited from one-off gains but will continue to suffer from low interest rates and cost pressure in Solid Core Asset Quality: Asset quality improved in 2016, supported by Germany s benign economic environment and a sound corporate sector. The bank s low non-performing loan (NPL) ratio benefited from further reduction of the NCU and de-recognition of part of its impaired exposure to the Austrian wind-down institution HETA Asset Resolution AG. Similar to its Landesbank peers, BayernLB s business model results in significant sector and single-name loan concentration. Improved Capitalisation: Declining risk-weighted assets (RWAs) led to an increase in BayernLB's fully loaded common equity Tier 1 (CET1) ratio to 13.2% at end This compares favourably with peers and was well above the bank s 8% transitional CET1 ratio SREP requirement for However, the fully loaded leverage ratio remains tight because a high proportion of the bank s assets benefits from very low regulatory risk weights. Robust Funding Profile: BayernLB has ample liquidity and a diversified funding mix by funding sources and customers. It includes material wholesale funding and benefits from access to the savings banks large excess liquidity and retail deposits of DKB, its online banking arm, which has strengthened its funding profile. Rating Sensitivities Owners Drive Stable IDR: Fitch believes that the propensity, ability and strategic commitment of BayernLB s owners to provide timely support will remain strong. German Economic Environment: BayernLB s VR could be upgraded if the bank strengthens its company profile further and demonstrates sustainable profit growth while maintaining a conservative risk appetite. BayernLB s performance is dependent on Germany s economic performance. A structural weakening would likely put downward pressure on the VR. 31

2 Germany-Forecast Summary 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% GDP CPI Inflation Consumer Spending f 2018f 2019f Source: Fitch - Germany - June 2017 Global Economic Outlook Forecast Operating Environment Benign German Economic Environment Supports Asset Quality BayernLB operates predominantly in Germany. About 78% of its gross credit exposure is to German customers, while its non-domestic portfolio is primarily composed of western European and North American businesses. With one of the eurozone s lowest unemployment rates, a generally sound property market and low levels of corporate insolvencies, Germany s solid economy supports BayernLB s asset quality. Fitch expects the German economy to maintain its robust momentum, with 1.9% GDP growth in 2017 and 1.7% in 2018, thanks to healthy domestic fundamentals and the ECB s monetary policy stimulus. Global uncertainties, notably related to the future US trade policy and Brexit, are likely to persist until 2018 and are a risk for the German economy, which is deeply integrated in the global supply chains. Bavaria Is One of Germany s Most Prosperous Regions With a population of almost 13 million and a GDP of EUR568 billion in 2016, Bavaria accounts for about 16% of Germany s population and 18% of its GDP. The size of Bavaria s economy is broadly comparable with that of Austria, Belgium or Sweden. Bavaria s GDP growth, productivity and income per capita are above the German average. The share of the manufacturing sector (most notably mechanical engineering and automotive) in Bavaria s GDP is one of the highest in Germany and the region s economy benefits from a large number of leading, often export-driven, large and mid-sized companies in high-technology sectors. This makes Bavaria s economy sensitive to the business cycle, technological changes and protectionist trends abroad. The solid economic environment supports Bavaria s main industries and strengthens the self-financing capacity of corporate clients. This benefits BayernLB s asset quality, but the resulting low loan demand hampers the bank s new business. Developed Banking Sector, High Competitive Pressure The German banking sector is developed and supervised effectively. It is more fragmented and exposed to stronger competition than most European markets. The ECB has directly supervised BayernLB and other large German banks since 4Q14 under the Single Supervisory Mechanism. As one of 14 German banks classified as other systemically important institution (O-SII), BayernLB has to fulfil an individual O-SII buffer of 1% above its Pillar 1 capital requirements for A new hierarchy of creditors for German banks in resolution came into effect in early Its retroactive statutory subordination of senior unsecured bonds to deposits, derivatives and structured liabilities mitigates the banks need to raise unsecured debt to fulfil their minimum requirements for own funds and eligible liabilities (MREL) and total loss-absorbing capacity (TLAC). Company Profile Wholesale Commercial Bank with Access to Retail Business and Funding BayernLB is mainly a wholesale commercial bank with a broad and entrenched domestic franchise. The bank has access to retail customers through its 100%-owned subsidiary DKB, which complements its commercial wholesale franchise. BayernLB has completed the comprehensive restructuring that it started after receiving state aid and being recapitalised by its owners in The bank has become largely domestically focused as a result of the restructuring. Related Criteria Global Bank Rating Criteria (November 2016) At end-june 2017 BayernLB repaid the final EUR 1 billion of state aid it had received in 2008 to Bavaria. With this payment, all EC conditions have been fulfilled ahead of the original deadline. 2

3 Corporates/ mittelstand Real estate/ savings banks DKB Markets Central areas/others Non core unit Corporates/ mittelstand Real estate/ savings banks DKB Markets Central areas/others Non core unit Banks RWA Development by Segment (EURbn) Q17ª ª Non-core unit no longer exists Pre-tax Profits by Segment (EURm) Q17 ª Non-core unit no longer exists As DKB conducts its business through digital channels, it does not incur the costs of a branch network. DKB had total assets of EUR76.5 billion at end-2016, equal to 36% of BayernLB s balance sheet. It is a core business and a significant contributor to the group s revenue. BayernLB s international activities are moderate and have been subject to constraints under the bank s commitments to the EC, under which it had to demonstrate that foreign activities were strictly connected to its customer base. The bank has branches in London, Milan, New York and Paris, and a representative office in Moscow. In its role as a Landesbank, BayernLB is the state bank for Bavaria and acts as the central service provider bank for the region s 66 savings banks (as of 1 ), which had total assets of EUR198 billion at end Focused Business Portfolio BayernLB s core businesses concentrate on large and mid-sized corporates as well as commercial real estate (CRE) customers, primarily in Germany. The bank provides a broad range of customer-driven capital markets and treasury products in its financial market divisions, including asset-management services through Bayern Invest. Non-strategic assets were grouped in BayernLB s NCU until RWAs in the unit have declined significantly from EUR21.3 billion at end-2013 to about EUR2.0 billion at end-1q17, or 3% of the group s total RWAs. These are no longer reported as a separate segment. We expect the wind-down process to progress significantly by end The BayernLB group also includes the legally dependent but organisationally and financially independent institution Bayerische Landesbodenkreditanstalt, Munich (BayernLabo), which had total assets of EUR21 billion at end BayernLabo does not add material risk to the group as the state of Bavaria is the unconditional, permanent and irrevocable guarantor for all of its liabilities. However, the tight business margins in BayernLabo s development business affects BayernLB s overall net interest margin. Management and Strategy Strategy No Longer Constrained by EC BayernLB s management team has been in place since 2014 and has shown its ability to resolve the bank s legacy issues in line with EC requirements, partly by repositioning the bank in the domestic market. BayernLB s strategy is no longer be subject to limitations linked to commitments taken with the EC. We expect management to review its strategic objectives, but we do not believe the bank will change its strategy fundamentally because the need to maintain adequate capitalisation limits the scope for expansion. Any initiatives to increase its risk appetite by expanding its balance sheet aggressively, or by material growth in foreign markets, where margins are more attractive than in Germany, could put pressure on the bank s VR. Risk Appetite Underwriting Standards in Line with Industry Practice Fitch believes that BayernLB maintains adequate risk-management systems including stresstesting capabilities. Risk appetite has been moderate, driven by the bank s restructuring, in line with EC requirements. In its domestic corporate business, we believe risk appetite is broadly in line with industry practice. BayernLB has moderately increased the business volume in this segment and we expect its core businesses to grow in line with the economy. While we have no evidence of softening underwriting standards, BayernLB, like its peers, may find the adequate pricing of credit risk increasingly challenging and underwriting standards may ultimately become looser, in view of low interest rates and intense competition. 3

4 MR 0-7 MR 8-11 MR MR MR MR core MR non-core Banks VaR Contribution (Confidence Level 99%) 1 Jan Dec 16 EUR million End-2016 End-2015 Average Maximum Minimum General interest rate VaR Specific interest rate VaR (credit spreads)* Currency VaR Equities VaR Commodities VaR Volatility VaR Total VaR* * After eliminating intra-group positions upon consolidation; in the risk-bearing capacity, in addition to the specific interest rate VaR, premiums for credit rating risk from money market transactions and OTC derivatives (CVA risk) at BayernLB are also taken into account when calculating the risk capital requirement. High Granularity Inner Circle: 2016 (EUR189bn) Outer Cirle: 2015 (EUR191bn) > 2.5bn > 1bn to 2.5bn > 500m to 1bn > 250m to 500m > 100m to 250m >50m to 100m > 5m to 50m Up to 5m 7% 15% 3% 24% 10% 5% 16% 2% 8% 26% 14% 18% 11% 19% 8% 14% Rating Migration - Gross Credit Exposure by Rating Class (%) Investment Grade: MR 0-11 Non-Inv. Grade: MR12-21 Default: MR22-24 Moderate Exposure to Market Risk We view BayernLB s market risk exposure as moderate compared with its loss-absorbing capacity. BayernLB assesses market risks through various tools, including value-at-risk (VaR), risk sensitivity and stress tests. The calculation of market risk-related economic capital requirements includes the risk from pension liabilities. The main factor affecting total VaR is general interest-rate risk and, to a lesser extent, credit spread risk. Other types of market risk, including currency, equities or commodities risk, are much less significant. Trading activities are low because BayernLB has needed to demonstrate customer connectivity as part of its EC requirement. However, a decline in market risk from end-2015 was mainly due to changes in the method of risk aggregation at DKB, lower volatility and changes in positions at DKB. We do not expect trading activities to increase significantly after the close of the state aid proceeding. Financial Profile Asset Quality Improving Asset Quality About two-thirds of BayernLB s gross credit exposure resides in the parent bank and about a third in DKB, where exposures are generally granular. The bank s overall asset quality is sound as reflected by the declining NPL ratio (2016: 3.1%, 2015: 4.5% according to Fitch s calculations). This was driven by positive rating migration and de-recognition of part of its exposure to HETA and the decline of assets in the NCU. The de-recognition reflected the stand-alone valuation of the exposure at year-end In July 2015 a memorandum of understanding (MoU) was reached between Bavaria and Austria. Pursuant to the implementation of the MoU Austria made a compensation payment of EUR1.2 billion in exchange for the termination of legal disputes between Bavaria, Austria and Carinthia, BayernLB, Heta Asset Resolution. At end-2016, about 68% of the total exposure in default categories still related to NCU assets, highlighting the high quality of assets in the bank s core businesses. The negative impact from the NCU declined sharply as RWAs fell by 45% in 2016 and totalled EUR2.6 billion at year-end. RWAs related to legacy assets further declined to EUR2 billion in 1Q17. Increasing Granularity of Credit Exposures In line with the bank s strategy, the bulk of exposures are granular, and about 85% of total net credit exposure consists of individual loans of up to EUR0.5 billion, mostly in the corporates and CRE sub-portfolios. The bank s large exposures above EUR0.5 billion based on net credit volume declined further in 2016, by 13%. The main shift was in the segment above EUR2.5 billion, which fell from EUR13.1 billion at end-2015 to EUR9.4 billion at end

5 Gross Exposure Breakdown by sub-portfolio End-2016 total: EUR257bn CRE 18% Retail/other 12% Financial institutions 21% Corporates 28% Countries/ public sector 21% Positive Rating Migration The quality of credit exposures measured by BayernLB s internal ratings has improved further as 84% of exposures were rated investment grade at end-2016 (end-2015: 81%). Exposures in non-performing rating classes dropped notably. Stable Quality in Commercial Real Estate The bank s gross CRE portfolio rose moderately to EUR46.5 billion at end-2016 (BayernLB: EUR19.1 billion, DKB: EUR24.8 billion, BayernLabo: EUR2.6 billion). The group had a total exposure to retail residential construction term loans of about EUR28.3 billion at end-2016 (end-2015: EUR27.2 billion). The CRE exposure was predominantly in Germany (2016: 78%) with 12% in western Europe (including the UK), the rest in eastern Europe and the US. Of the gross exposure, 75% generated current cash flows with a debt-service capacity of above 8%. Manageable Exposure to Peripheral Countries BayernLB s exposure to peripheral eurozone countries moderately declined to EUR3.8 billion at end-2016, mainly comprising Spain (EUR1.4 billion) and Italy (EUR1.9 billion). Exposure to Greece is immaterial. Fitch believes the bank s unsecured sovereign exposures to Russia (BBB-/Stable/F3) and Turkey (BB+/Stable/B) are manageable and the bank plans to reduce exposures to these countries. Revenue Drivers Periods ending % NII Fees Trading/valuation Other 80% 60% 40% 20% 0% Source: Fitch; BayernLB Earnings and Profitability Moderate but Stable Profitability With most of its legacy issues resolved, BayernLB s profitability has become more stable and predictable, and we expect the consistent performance to continue. The performance of the corporate and mid-corporate business (CMB) and financial markets remain affected by the low interest rates. However, increased net commission income and lower risk charges have so far mitigated earnings pressure. The bank s cost base has remained sticky and operating expenses increased almost 10% in 2016, largely driven by costs for regulation, pension provisions and IT projects. The bank has launched an efficiency programme to address cost pressure. The bank reported a pre-tax net profit of EUR708 million in 2016 (2015: EUR646 million), with a positive contribution from all core segments. However, one-off gains of EUR132 million from the sale of VISA (booked at DKB) and EUR28 million from the sale of Deutsche Factoring Bank (booked in CMB) overstated core results. NII suffered in line with peers after relatively stable low funding costs in We expect earnings to remain stable in 2017, but they are unlikely to reach 2016 results in our view, even if loan impairment charges remain low. We see vulnerabilities in CMB and a continuation of the structural factors, including low interest rates that put pressure on the bank s earnings. Reliance on Interest Income and Fees BayernLB, like its peers, is reliant on net interest income (NII) and on its capacity to generate fee income. Results from trading and fair-value measurements are varying but do not add material volatility to results as they typically account for less than 20 % of total revenue. The largest part of NII it generated was in DKB, which accounted for 53% of 2016 total net revenue. NII at DKB was resilient in 2016 and increased 20% since 2014 due to a higher number of customers and improved interest-rate management. However, NII shrank in the bank s corporate business, real estate, savings banks and markets segments, mainly because of to low interest rates and the sale of securities in the previous year. We expect this trend to continue in 2017, but also believe that expected further growth of DKB will help mitigate a further erosion of NII. Good Start to 2017 In 1Q17, BayernLB reported pre-tax net profit of EUR230 million, despite the fact that the bank recognised the full charge for the bank levy and deposit guarantee scheme in the first quarter. 5

6 The strong 1Q17 result was driven by increased NII, higher net commission income, low-risk costs and gains from fair-value measurements, which overcompensated increasing administrative expenses. Improving Capitalisation (%) Risk-weighted assets (RHS) Leverage ratio (transitional) (LHS) Total regulatory capital ratio (LHS) CET1 ratio (fully loaded) (LHS) (EURbn) Q Capitalisation and Leverage Deleveraging Drives Improved Capital Ratios We believe that BayernLB s current and expected capitalisation provides adequate protection when considering the bank s risk profile. BayernLB s RWAs have been declining for the past five years as the bank s commitments with the EC included a balance-sheet reduction, the disposal of subsidiaries and lower exposures to non-strategic assets. As a result, RWAs reached a low point of EUR65 billion at end-2016, EUR4.4 billion lower than the previous year. About half of the reduction came from the sale of legacy assets. As a result of its deleveraging, capital ratios remained well above regulatory requirements and its fully loaded CET1 ratio of 13.1% at end-1q17 compared well with peers. We expect that BayernLB s business growth will be moderate, even when the bank is no longer subject to the constraints related to state aid. Leverage Adequate, RWA Density Relatively Low BayernLB s fully loaded leverage ratio of 3.8% at end-2016 is adequate but demonstrates the bank s low RWA density at 30% at end SREP Requirement Comfortably Met BayernLB comfortably complies with the supervisory review and evaluation process (SREP) requirement for For 2017, the ECB set a CET1 SREP requirement of 8% for BayernLB on a consolidated basis taken into account the transitional CRR provisions. This comprises a minimum CET1 regulatory requirement of 4.5%, a Pillar 2 requirement of 1.92% (the lowest among Landesbanken), a capital conservation buffer of 1.25% and a 0.33% buffer for O-SIIs. Funding Profile 100% 80% 60% 40% 20% 0% Subordinated debt Senior unsecured debt Commercial papers/short-term debt Deposits from banks Customer deposits Funding and Liquidity Sound Funding Profile BayernLB s liquidity and funding are sound and supported by access to a diversified pool of funding sources, including domestic and international institutional investors. Like its Landesbanken peers, BayernLB is a predominantly wholesale-funded institution, but has comparatively larger and established access to customer deposits through DKB, its retail direct banking arm. DKB s retail deposits from private, investors in renewable energy and infrastructure projects, and corporate clients totalled EUR53 billion at end The Sparkassen are stable and reliable contributors to BayernLB s funding, primarily as buyers of promissory notes (Schuldscheine), and of secured and unsecured issues. As a result, BayernLB typically accesses capital markets primarily for issuance of secured debt benchmark issues. Its overall refinancing structure is stable. Large Liquidity Reserves BayernLB has a substantial pool of highly liquid assets (mainly German and supra-national Level 1 assets) and other central bank eligible and unencumbered assets. Assets readily available at any time during the next 30 days to be liquidated via outright sale or via simple repurchase agreements on an approved repurchase markets are adequate to withstand stresses as expressed by the group s LCR of 136% end The amount of grandfathered debt still outstanding is below EUR1 billion after the large redemptions in

7 Income Statement 31 Dec Dec Dec Dec 2013 Year End Year End Year End Year End EURm EURm EURm EURm Audited - Unqualified Audited - Unqualified Audited - Unqualified Audited - Unqualified 1. Interest Income on Loans 3,871 4,224 4,748 5, Other Interest Income 2,623 2,235 2,505 2, Dividend Income n.a. n.a. n.a. n.a. 4. Gross Interest and Dividend Income 6,494 6,459 7,253 7, Interest Expense on Customer Deposits n.a. n.a. n.a. n.a. 6. Other Interest Expense 5,019 4,847 5,582 5, Total Interest Expense 5,019 4,847 5,582 5, Net Interest Income 1,475 1,612 1,671 1, Net Gains (Losses) on Trading and Derivatives 79 (112) (35) Net Gains (Losses) on Other Securities Net Gains (Losses) on Assets at FV through Income Statement (59) (65) 12. Net Insurance Income n.a. n.a. n.a. n.a. 13. Net Fees and Commissions Other Operating Income Total Non-Interest Operating Income Personnel Expenses Other Operating Expenses Total Non-Interest Expenses 1,367 1,260 1,176 1, Equity-accounted Profit/ Loss - Operating n.a. n.a. n.a Pre-Impairment Operating Profit ,285 1, Loan Impairment Charge , Securities and Other Credit Impairment Charges n.a. n.a. n.a. n.a. 23. Operating Profit (213) Equity-accounted Profit/ Loss - Non-operating n.a. n.a. n.a. n.a. 25. Non-recurring Income 182 n.a. n.a Non-recurring Expense n.a Change in Fair Value of Own Debt (20) (56) (102) (53) 28. Other Non-operating Income and Expenses n.a. n.a. n.a. n.a. 29. Pre-tax Profit (348) Tax expense (98) Profit/Loss from Discontinued Operations n.a. n.a. (1,070) (381) 32. Net Income (1,320) Change in Value of AFS Investments (94) (43) Revaluation of Fixed Assets n.a. n.a. n.a. n.a. 35. Currency Translation Differences 0 (8) 102 (31) 36. Remaining OCI Gains/(losses) (69) (69) (243) (82) 37. Fitch Comprehensive Income (972) Memo: Profit Allocation to Non-controlling Interests 5 (1) n.a Memo: Net Income after Allocation to Non-controlling Interests (1,320) Memo: Common Dividends Relating to the Period n.a. n.a. n.a. n.a. 41. Memo: Preferred Dividends Related to the Period n.a. n.a. n.a. n.a. Exchange rate USD1 = EUR USD1 = EUR USD1 = EUR USD1 = EUR

8 Balance Sheet 31 Dec Dec Dec Dec 2013 Year End Year End Year End Year End EURm EURm EURm EURm Assets A. Loans 1. Residential Mortgage Loans n.a. n.a. n.a. n.a. 2. Other Mortgage Loans n.a. n.a. n.a. n.a. 3. Other Consumer/ Retail Loans n.a. n.a. n.a. n.a. 4. Corporate & Commercial Loans n.a. n.a. n.a. n.a. 5. Other Loans 134, , , , Less: Reserves for Impaired Loans 1,295 2,539 2,510 2, Net Loans 133, , , , Gross Loans 134, , , , Memo: Impaired Loans included above 4,109 6,072 6,588 8, Memo: Loans at Fair Value included above n.a. n.a. n.a. n.a. B. Other Earning Assets 1. Loans and Advances to Banks 28,783 29,216 36,562 42, Reverse Repos and Cash Collateral n.a. n.a. n.a. n.a. 3. Trading Securities and at FV through Income 4,349 3,838 4,731 7, Derivatives 14,491 16,394 24,056 23, Available for Sale Securities 26,111 27,979 22,738 22, Held to Maturity Securities n.a. n.a. n.a. n.a. 7. Equity Investments in Associates Other Securities ,390 15, Total Securities 45,549 48,865 61,268 69, Memo: Government Securities included Above n.a. n.a. n.a. n.a. 11. Memo: Total Securities Pledged n.a. n.a. n.a. n.a. 12. Investments in Property Insurance Assets n.a. n.a. n.a. n.a. 14. Other Earning Assets n.a. n.a. n.a. n.a. 15. Total Earning Assets 207, , , ,531 C. Non-Earning Assets 1. Cash and Due From Banks 2,096 2,246 1,041 3, Memo: Mandatory Reserves included above n.a. n.a. n.a. n.a. 3. Foreclosed Real Estate n.a. n.a. n.a. n.a. 4. Fixed Assets Goodwill n.a. n.a. n.a. n.a. 6. Other Intangibles Current Tax Assets Deferred Tax Assets Discontinued Operations , Other Assets 1, Total Assets 212, , , ,483 Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 59,550 56,682 51,679 55, Customer Deposits - Savings n.a. n.a. n.a. n.a. 3. Customer Deposits - Term 27,245 29,348 29,956 30, Total Customer Deposits 86,795 86,030 81,635 86, Deposits from Banks 54,211 60,360 64,138 71, Repos and Cash Collateral n.a. n.a. n.a. n.a. 7. Commercial Paper and Short-term Borrowings 8,944 5,172 16,929 17, Total Money Market and Short-term Funding 149, , , , Senior Unsecured Debt (original maturity > 1 year) 30,735 29,714 27,471 35, Subordinated Borrowing 2,600 2,950 4,275 4, Covered Bonds n.a. n.a. n.a. n.a. 12. Other Long-term Funding n.a. n.a. n.a. n.a. 13. Total LT Funding (original maturity > 1 year) 33,335 32,664 31,746 39, Derivatives 11,466 13,001 19,828 19, Trading Liabilities Total Funding 195, , , ,352 E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt (61) (45) (115) (31) 2. Credit impairment reserves n.a. n.a. n.a. n.a. 3. Reserves for Pensions and Other 4,421 4,300 4,360 3, Current Tax Liabilities Deferred Tax Liabilities Other Deferred Liabilities Discontinued Operations n.a. n.a. n.a. n.a. 8. Insurance Liabilities n.a. n.a. n.a. n.a. 9. Other Liabilities , Total Liabilities 200, , , ,078 F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt 481 1, Pref. Shares and Hybrid Capital accounted for as Equity 1,069 1,394 2,256 3,579 G. Equity 1. Common Equity 9,658 9,246 9,073 11, Non-controlling Interest n.a Securities Revaluation Reserves (37) 4. Foreign Exchange Revaluation Reserves (1) 0 8 (92) 5. Fixed Asset Revaluations and Other Accumulated OCI n.a. n.a. n.a. n.a. 6. Total Equity 9,987 9,669 9,533 11, Total Liabilities and Equity 212, , , , Memo: Fitch Core Capital 9,547 9,227 9,145 11,031 8

9 Summary Analytics 31 Dec Dec Dec Dec 2013 Year End Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans Interest Expense on Customer Deposits/ Average Customer Deposits n.a. n.a. n.a. n.a. 3. Interest Income/ Average Earning Assets Interest Expense/ Average Interest-bearing Liabilities Net Interest Income/ Average Earning Assets Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues Non-Interest Expense/ Gross Revenues Non-Interest Expense/ Average Assets Pre-impairment Op. Profit/ Average Equity Pre-impairment Op. Profit/ Average Total Assets Loans and securities impairment charges/ Pre-impairment Op. Profit Operating Profit/ Average Equity (1.8) Operating Profit/ Average Total Assets (0.1) Operating Profit / Risk Weighted Assets (0.3) 1.0 C. Other Profitability Ratios 1. Net Income/ Average Total Equity (11.3) Net Income/ Average Total Assets (0.5) Fitch Comprehensive Income/ Average Total Equity (8.3) Fitch Comprehensive Income/ Average Total Assets (0.4) Taxes/ Pre-tax Profit Net Income/ Risk Weighted Assets (1.7) 0.2 D. Capitalization 1. FCC/FCC-Adjusted Risk Weighted Assets Tangible Common Equity/ Tangible Assets Tier 1 Regulatory Capital Ratio Total Regulatory Capital Ratio Common Equity Tier 1 Capital Ratio n.a. 6. Equity/ Total Assets Cash Dividends Paid & Declared/ Net Income n.a. n.a. n.a. n.a. 8. Internal Capital Generation (13.9) 1.2 E. Loan Quality 1. Growth of Total Assets (1.7) (7.1) (9.1) (10.9) 2. Growth of Gross Loans (0.8) 1.3 (2.9) (8.4) 3. Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Gross Loans Reserves for Impaired Loans/ Impaired Loans Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital Impaired Loans less Reserves for Impaired Loans/ Equity Loan Impairment Charges/ Average Gross Loans Net Charge-offs/ Average Gross Loans Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets F. Funding and Liquidity 1. Loans/ Customer Deposits Interbank Assets/ Interbank Liabilities Customer Deposits/ Total Funding (excluding derivatives) Liquidity Coverage Ratio 136 n.a. n.a. n.a. 5. Net Stable Funding Ratio n.a. n.a. n.a. n.a. 9

10 Reference Data 31 Dec Dec Dec Dec 2013 Year End Year End Year End Year End EURm EURm EURm EURm A. Off-Balance Sheet Items 1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. n.a. n.a. 2. Other off-balance sheet exposure to securitizations n.a. n.a. n.a. n.a. 3. Guarantees 10,671 10,193 11,477 12, Acceptances and documentary credits reported off-balance sheet n.a. n.a. n.a. n.a. 5. Committed Credit Lines 24,085 21,458 24,053 22, Other Off-Balance Sheet items Total Assets under Management n.a. n.a. n.a. n.a. B. Average Balance Sheet Average Loans 136, , , ,926 Average Earning Assets 215, , , ,853 Average Assets 220, , , ,497 Average Managed Securitized Assets (OBS) n.a. n.a. n.a. n.a. Average Interest-Bearing Liabilities 203, , , ,478 Average Common equity 9,648 10,335 11,606 12,816 Average Equity 9,969 10,575 11,684 12,793 Average Customer Deposits 88,632 82,685 85,698 90,767 C. Maturities Asset Maturities: Loans & Advances < 3 months 11,871 15,850 15,021 13,485 Loans & Advances 3-12 Months 11,884 10,535 10,852 11,290 Loans and Advances 1-5 Years 41,787 41,696 37,525 38,911 Loans & Advances > 5 years 69,218 67,731 70,619 74,286 Debt Securities < 3 Months n.a. n.a. n.a. n.a. Debt Securities 3-12 Months n.a. n.a. n.a. n.a. Debt Securities 1-5 Years n.a. n.a. n.a. n.a. Debt Securities > 5 Years n.a. n.a. n.a. n.a. Loans & Advances to Banks < 3 Months 11,174 11,029 15,468 19,616 Loans & Advances to Banks 3-12 Months 4,156 4,059 6,362 6,377 Loans & Advances to Banks 1-5 Years 6,079 7,011 7,271 9,535 Loans & Advances to Banks > 5 Years 7,374 7,117 7,461 7,398 Liability Maturities: Retail Deposits < 3 months 59,550 56,682 51,679 55,911 Retail Deposits 3-12 Months 3,646 6,095 5,587 4,390 Retail Deposits 1-5 Years 7,820 7,610 8,426 9,935 Retail Deposits > 5 Years 15,779 15,643 15,943 15,947 Other Deposits < 3 Months n.a. n.a. n.a. n.a. Other Deposits 3-12 Months n.a. n.a. n.a. n.a. Other Deposits 1-5 Years n.a. n.a. n.a. n.a. Other Deposits > 5 Years n.a. n.a. n.a. n.a. Deposits from Banks < 3 Months 10,964 15,607 14,834 20,203 Deposits from Banks 3-12 Months 5,291 5,398 8,518 6,748 Deposits from Banks 1-5 Years 15,074 16,895 18,024 21,687 Deposits from Banks > 5 Years 22,882 22,460 22,762 22,553 Senior Debt Maturing < 3 months 4,374 1,508 3,712 5,028 Senior Debt Maturing 3-12 Months 4,570 3,664 13,217 12,480 Senior Debt Maturing 1-5 Years 14,831 14,674 15,016 27,379 Senior Debt Maturing > 5 Years 15,843 15,040 12,455 8,108 Total Senior Debt on Balance Sheet 39,618 34,886 44,400 52,995 Fair Value Portion of Senior Debt n.a. n.a. n.a. n.a. Subordinated Debt Maturing < 3 months n.a. n.a. n.a. n.a. Subordinated Debt Maturing 3-12 Months n.a. n.a. n.a. n.a. Subordinated Debt Maturing 1-5 Year n.a. n.a. n.a. n.a. Subordinated Debt Maturing > 5 Years n.a. n.a. n.a. n.a. Total Subordinated Debt on Balance Sheet 2,600 2,950 4,275 4,465 Fair Value Portion of Subordinated Debt n.a. n.a. n.a. n.a. D. Risk Weighted Assets 1. Risk Weighted Assets 65,206 69,606 76,616 87, Fitch Core Capital Adjustments for Insurance and Securitisation Risk Weighted Asse n.a. n.a. n.a. n.a. 3. Fitch Core Capital Adjusted Risk Weighted Assets 65,206 69,606 76,616 87, Other Fitch Adjustments to Risk Weighted Assets n.a. n.a. n.a. n.a. 5. Fitch Adjusted Risk Weighted Assets 65,206 69,606 76,616 87,600 E. Equity Reconciliation 1. Equity 9,987 9,669 9,533 11, Add: Pref. Shares and Hybrid Capital accounted for as Equity 1,069 1,394 2,256 3, Add: Other Adjustments n.a. n.a. n.a. n.a. 4. Published Equity 11,056 11,063 11,789 14,886 F. Fitch Core Capital Reconciliation 1. Total Equity as reported (including non-controlling interests) 9,987 9,669 9,533 11, Fair value effect incl in own debt/borrowings at fv on the B/S- CC only Non-loss-absorbing non-controlling interests Goodwill Other intangibles Deferred tax assets deduction Net asset value of insurance subsidiaries First loss tranches of off-balance sheet securitizations Fitch Core Capital 9,547 9,227 9,145 11,031 10

11 The ratings above were solicited and assigned or maintained at the request of the rated entity/issuer or a related third party. Any exceptions follow below. 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY Telephone: , (212) Fax: (212) Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent thirdparty verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided as is without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no ) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act