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) 223,622 234,851 Total assets (EURm) 212,150 215,711 Total equity (EURm) 9,987 9,669 Net interest margin (%) 0.7 0.7 Cost/income ratio (%) 68 56 Operating ROAE (%) 5.5 6.7 LICs/gross loans (%) 0.1 0.2 NPL ratio (%) 3.1 4.5 Fitch Core Capital ratio 14.6 13.3 (%) CET1 ratio (transitional) (%) 13.3 14.0 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 +49 69 768 076 242 roger.schneider@fitchratings.com Sebastian Schrimpf, CFA +49 69 768 076 136 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 2017. 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-2016. This compares favourably with peers and was well above the bank s 8% transitional CET1 ratio SREP requirement for 2017. 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. www.fitchratings.com 31
Germany-Forecast Summary 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% GDP CPI Inflation Consumer Spending 2016 2017f 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 2017. A new hierarchy of creditors for German banks in resolution came into effect in early 2017. 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 2008. 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
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) 25 20 15 10 5 0 2015 2016 1Q17ª ª Non-core unit no longer exists Pre-tax Profits by Segment (EURm) 400 200 0-200 -400 2015 2016 1Q17 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-2016. 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 2016. 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-2017. 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-2016. 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
MR 0-7 MR 8-11 MR 12-14 MR 15-18 MR 19-21 MR 22-24 core MR 22-24 non-core Banks VaR Contribution (Confidence Level 99%) 1 Jan 16-31 Dec 16 EUR million End-2016 End-2015 Average Maximum Minimum General interest rate VaR 35.9 38.0 30.3 42.7 20.8 Specific interest rate VaR 11.0 11.6 11.6 13.4 10.1 (credit spreads)* Currency VaR 2.2 3.9 4.0 6.5 1.8 Equities VaR 4.6 5.6 4.9 5.6 4.0 Commodities VaR 1.7 1.0 1.2 2.6 0.8 Volatility VaR 5.2 3.2 4.0 6.0 1.6 Total VaR* 36.0 45.8 35.4 48.1 25.3 * 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 (%) 2016 2015 60 40 20 0 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 2016. 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-2016. 4
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 2012-2016 100% NII Fees Trading/valuation Other 80% 60% 40% 20% 0% 2012 2013 2014 2015 2016 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 2015. 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
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 (%) 25 20 15 10 5 0 Risk-weighted assets (RHS) Leverage ratio (transitional) (LHS) Total regulatory capital ratio (LHS) CET1 ratio (fully loaded) (LHS) (EURbn) 2013 2014 2015 2016 1Q17 80 60 40 20 0 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-2016. SREP Requirement Comfortably Met BayernLB comfortably complies with the supervisory review and evaluation process (SREP) requirement for 2017. 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 2016 2015 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-2016. 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-2016. The amount of grandfathered debt still outstanding is below EUR1 billion after the large redemptions in 2015. 6
Income Statement 31 Dec 2016 31 Dec 2015 31 Dec 2014 31 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 5,086 2. Other Interest Income 2,623 2,235 2,505 2,552 3. Dividend Income n.a. n.a. n.a. n.a. 4. Gross Interest and Dividend Income 6,494 6,459 7,253 7,638 5. Interest Expense on Customer Deposits n.a. n.a. n.a. n.a. 6. Other Interest Expense 5,019 4,847 5,582 5,959 7. Total Interest Expense 5,019 4,847 5,582 5,959 8. Net Interest Income 1,475 1,612 1,671 1,679 9. Net Gains (Losses) on Trading and Derivatives 79 (112) (35) 264 10. Net Gains (Losses) on Other Securities 96 257 521 178 11. Net Gains (Losses) on Assets at FV through Income Statement 3 118 (59) (65) 12. Net Insurance Income n.a. n.a. n.a. n.a. 13. Net Fees and Commissions 296 289 249 211 14. Other Operating Income 51 71 114 196 15. Total Non-Interest Operating Income 525 623 790 784 16. Personnel Expenses 718 631 596 669 17. Other Operating Expenses 649 629 580 659 18. Total Non-Interest Expenses 1,367 1,260 1,176 1,328 19. Equity-accounted Profit/ Loss - Operating n.a. n.a. n.a. 41 20. Pre-Impairment Operating Profit 633 975 1,285 1,176 21. Loan Impairment Charge 87 264 1,498 320 22. Securities and Other Credit Impairment Charges n.a. n.a. n.a. n.a. 23. Operating Profit 546 711 (213) 856 24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. n.a. n.a. 25. Non-recurring Income 182 n.a. n.a. 9 26. Non-recurring Expense n.a. 10 33 173 27. 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 708 645 (348) 639 30. Tax expense 158 150 (98) 127 31. Profit/Loss from Discontinued Operations n.a. n.a. (1,070) (381) 32. Net Income 550 495 (1,320) 131 33. Change in Value of AFS Investments (94) (43) 489 0 34. 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 387 375 (972) 18 38. Memo: Profit Allocation to Non-controlling Interests 5 (1) n.a. 4 39. Memo: Net Income after Allocation to Non-controlling Interests 545 491 (1,320) 127 40. 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 = EUR0.9487 USD1 = EUR0.9185 USD1 = EUR0.8237 USD1 = EUR0.7251 7
Balance Sheet 31 Dec 2016 31 Dec 2015 31 Dec 2014 31 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 134,760 135,812 134,017 137,972 6. Less: Reserves for Impaired Loans 1,295 2,539 2,510 2,125 7. Net Loans 133,465 133,273 131,507 135,847 8. Gross Loans 134,760 135,812 134,017 137,972 9. Memo: Impaired Loans included above 4,109 6,072 6,588 8,934 10. 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 42,926 2. 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 7,605 4. Derivatives 14,491 16,394 24,056 23,697 5. Available for Sale Securities 26,111 27,979 22,738 22,647 6. Held to Maturity Securities n.a. n.a. n.a. n.a. 7. Equity Investments in Associates 427 311 353 378 8. Other Securities 171 343 9,390 15,332 9. Total Securities 45,549 48,865 61,268 69,659 10. 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 32 35 37 99 13. 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 207,829 211,389 229,374 248,531 C. Non-Earning Assets 1. Cash and Due From Banks 2,096 2,246 1,041 3,160 2. 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 347 351 360 619 5. Goodwill n.a. n.a. n.a. n.a. 6. Other Intangibles 86 106 114 154 7. Current Tax Assets 44 144 74 76 8. Deferred Tax Assets 358 331 314 209 9. Discontinued Operations 25 205 80 2,065 10. Other Assets 1,365 939 767 669 11. Total Assets 212,150 215,711 232,124 255,483 Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 59,550 56,682 51,679 55,911 2. Customer Deposits - Savings n.a. n.a. n.a. n.a. 3. Customer Deposits - Term 27,245 29,348 29,956 30,272 4. Total Customer Deposits 86,795 86,030 81,635 86,183 5. Deposits from Banks 54,211 60,360 64,138 71,191 6. 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 17,508 8. Total Money Market and Short-term Funding 149,950 151,562 162,702 174,882 9. Senior Unsecured Debt (original maturity > 1 year) 30,735 29,714 27,471 35,487 10. Subordinated Borrowing 2,600 2,950 4,275 4,465 11. 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 39,952 14. Derivatives 11,466 13,001 19,828 19,260 15. Trading Liabilities 632 643 518 258 16. Total Funding 195,383 197,870 214,794 234,352 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 3,503 4. Current Tax Liabilities 198 217 175 265 5. Deferred Tax Liabilities 0 4 28 29 6. Other Deferred Liabilities 28 28 26 36 7. Discontinued Operations n.a. n.a. n.a. n.a. 8. Insurance Liabilities n.a. n.a. n.a. n.a. 9. Other Liabilities 644 504 621 1,924 10. Total Liabilities 200,613 202,878 219,889 240,078 F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt 481 1,770 446 519 2. 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 11,406 2. Non-controlling Interest 15 14 n.a. 30 3. Securities Revaluation Reserves 315 409 452 (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 11,307 7. Total Liabilities and Equity 212,150 215,711 232,124 255,483 8. Memo: Fitch Core Capital 9,547 9,227 9,145 11,031 8
Summary Analytics 31 Dec 2016 31 Dec 2015 31 Dec 2014 31 Dec 2013 Year End Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans 2.8 3.1 3.5 3.5 2. Interest Expense on Customer Deposits/ Average Customer Deposits n.a. n.a. n.a. n.a. 3. Interest Income/ Average Earning Assets 3.02 2.90 3.00 2.91 4. Interest Expense/ Average Interest-bearing Liabilities 2.47 2.32 2.46 2.40 5. Net Interest Income/ Average Earning Assets 0.69 0.72 0.69 0.64 6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 0.65 0.61 0.07 0.52 7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets 0.69 0.72 0.69 0.64 B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues 26.3 27.9 32.1 31.8 2. Non-Interest Expense/ Gross Revenues 68.4 56.4 47.8 53.9 3. Non-Interest Expense/ Average Assets 0.6 0.6 0.5 0.5 4. Pre-impairment Op. Profit/ Average Equity 6.35 9.22 11.00 9.19 5. Pre-impairment Op. Profit/ Average Total Assets 0.29 0.43 0.52 0.44 6. Loans and securities impairment charges/ Pre-impairment Op. Profit 13.7 27.1 116.6 27.2 7. Operating Profit/ Average Equity 5.5 6.7 (1.8) 6.7 8. Operating Profit/ Average Total Assets 0.3 0.3 (0.1) 0.3 9. Operating Profit / Risk Weighted Assets 0.8 1.0 (0.3) 1.0 C. Other Profitability Ratios 1. Net Income/ Average Total Equity 5.5 4.7 (11.3) 1.0 2. Net Income/ Average Total Assets 0.3 0.2 (0.5) 0.1 3. Fitch Comprehensive Income/ Average Total Equity 3.9 3.6 (8.3) 0.1 4. Fitch Comprehensive Income/ Average Total Assets 0.2 0.2 (0.4) 0.0 5. Taxes/ Pre-tax Profit 22.3 23.3 28.2 19.9 6. Net Income/ Risk Weighted Assets 0.8 0.7 (1.7) 0.2 D. Capitalization 1. FCC/FCC-Adjusted Risk Weighted Assets 14.6 13.3 11.9 12.6 2. Tangible Common Equity/ Tangible Assets 4.5 4.3 4.0 4.3 3. Tier 1 Regulatory Capital Ratio 13.3 14.2 12.5 15.8 4. Total Regulatory Capital Ratio 15.6 16.1 14.9 19.4 5. Common Equity Tier 1 Capital Ratio 13.3 14.0 12.5 n.a. 6. Equity/ Total Assets 4.7 4.5 4.1 4.4 7. Cash Dividends Paid & Declared/ Net Income n.a. n.a. n.a. n.a. 8. Internal Capital Generation 5.5 5.1 (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 3.1 4.5 4.9 6.5 4. Reserves for Impaired Loans/ Gross Loans 1.0 1.9 1.9 1.5 5. Reserves for Impaired Loans/ Impaired Loans 31.5 41.8 38.1 23.8 6. Impaired loans less Reserves for Impaired Loans/ Fitch Core Capital 29.5 38.3 44.6 61.7 7. Impaired Loans less Reserves for Impaired Loans/ Equity 28.2 36.5 42.8 60.2 8. Loan Impairment Charges/ Average Gross Loans 0.1 0.2 1.1 0.2 9. Net Charge-offs/ Average Gross Loans 1.1 0.2 0.3 0.4 10. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets 3.1 4.5 4.9 6.5 F. Funding and Liquidity 1. Loans/ Customer Deposits 155 158 164 160 2. Interbank Assets/ Interbank Liabilities 53 48 57 60 3. Customer Deposits/ Total Funding (excluding derivatives) 47 46 41 39 4. Liquidity Coverage Ratio 136 n.a. n.a. n.a. 5. Net Stable Funding Ratio n.a. n.a. n.a. n.a. 9
Reference Data 31 Dec 2016 31 Dec 2015 31 Dec 2014 31 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 12,139 4. 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 22,239 7. Other Off-Balance Sheet items 35 61 290 34 8. Total Assets under Management n.a. n.a. n.a. n.a. B. Average Balance Sheet Average Loans 136,230 134,809 135,043 143,926 Average Earning Assets 215,151 222,671 241,892 262,853 Average Assets 220,227 226,465 248,346 269,497 Average Managed Securitized Assets (OBS) n.a. n.a. n.a. n.a. Average Interest-Bearing Liabilities 203,221 208,986 227,146 248,478 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 87,600 2. 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 87,600 4. 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 11,307 2. Add: Pref. Shares and Hybrid Capital accounted for as Equity 1,069 1,394 2,256 3,579 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 11,307 2. Fair value effect incl in own debt/borrowings at fv on the B/S- CC only 0 0 0 0 3. Non-loss-absorbing non-controlling interests 0 0 0 0 4. Goodwill 0 0 0 0 5. Other intangibles 86 106 114 154 6. Deferred tax assets deduction 354 336 274 122 7. Net asset value of insurance subsidiaries 0 0 0 0 8. First loss tranches of off-balance sheet securitizations 0 0 0 0 9. Fitch Core Capital 9,547 9,227 9,145 11,031 10
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