Credit Opinion: Banco Popular Español, S.A.

Credit Opinion: Banco Popular Español, S.A. Global Credit Research - 19 Jun 2015 Madrid, Spain Ratings Category Moody's Rating Outlook Stable Bank Deposits Ba1/NP Baseline Credit Assessment b1 Adjusted Baseline Credit Assessment b1 Senior Unsecured MTN -Dom Curr (P)Ba2 Subordinate -Dom Curr Pref. Stock Non-cumulative -Dom Curr B2 Caa1 Commercial Paper -Dom Curr NP Other Short Term -Dom Curr BPE Capital International Limited (P)NP Bkd Subordinate MTN (P)B2 Popular Capital Europe B.V. Bkd Subordinate MTN -Dom Curr Popular Finance Europe B.V. (P)B2 Bkd Sr Unsec MTN -Dom Curr (P)Ba2 Popular Preference (Cayman) Limited BACKED Pref. Stock Non-cumulative Caa1 BPE Financiaciones, S.A. Outlook Bkd Senior Unsecured -Dom Curr Stable Ba2 Bkd Subordinate -Dom Curr B2 Contacts Analyst Phone Maria Vinuela/Madrid Maria Cabanyes/Madrid 34.91.768.8200 Carola Schuler/Frankfurt am Main 49.69.707.30.700 Key Indicators Banco Popular Espanol, S.A. (Consolidated Financials)[1] [2]12-14 [3]12-13 [3]12-12 [3]12-11 [3]12-10 Avg. Total Assets (EUR million) 161,456.5146,709.5157,618.1130,944.7130,155.3 [4]5.5 Total Assets (USD million) 195,370.9202,157.1207,802.4169,985.2174,609.1 [4]2.8 Tangible Common Equity (EUR million) 8,032.4 6,167.0 4,406.0 7,552.1 7,252.2 [4]2.6 Tangible Common Equity (USD million) 9,719.6 8,497.8 5,808.9 9,803.8 9,729.1 [4]0.0 Problem Loans / Gross Loans (%) 19.5 20.3 12.4 7.6 5.9 [5]13.1 Tangible Common Equity / Risk Weighted Assets (%) 8.9 7.3 4.6 8.3 7.7 [6]8.9 Problem Loans / (Tangible Common Equity + Loan Loss 122.5 142.7 101.8 70.6 60.6 [5]99.7 Reserve) (%) Net Interest Margin (%) 1.6 1.6 1.9 1.7 1.9 [5]1.7 PPI / Average RWA (%) 2.2 1.9 2.0 1.7 2.2 [6]2.2 Net Income / Tangible Assets (%) 0.0-0.3-1.7 0.1 0.2 [5]-0.4 Cost / Income Ratio (%) 48.7 49.4 47.9 45.5 38.2 [5]45.9 Market Funds / Tangible Banking Assets (%) 41.5 34.9 44.1 41.1 24.5 [5]37.2

Liquid Banking Assets / Tangible Banking Assets (%) 27.0 22.3 16.0 16.3 13.9 [5]19.1 Gross Loans / Total Deposits (%) 123.0 121.6 142.7 134.2 113.0[5]126.9 Source: Moody's [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [3] Basel II; IFRS [4] Compound Annual Growth Rate based on IFRS reporting periods [5] IFRS reporting periods have been used for average calculation [6] Basel III - fully-loaded or transitional phase-in & IFRS reporting periods have been used for average calculation Opinion SUMMARY RATING RATIONALE On 17 June 2015, we upgraded Banco Popular Español S.A.'s (Popular) deposit ratings to Ba1 from Ba3 and its senior debt ratings to Ba2 from Ba3; the bank's standalone baseline credit assessment (BCA) of b1, its Not-Prime short-term rating and its junior instruments were affirmed at current levels. The rating action was prompted by changes arising from the implementation of Moody's new methodology for rating banks globally, and specifically our advanced Loss Given Failure (LGF) analysis. Furthermore, Moody's has assigned a Counterparty Risk Assessment (CR Assessment) of Baa3 (cr)/prime-3 (cr) to Popular. Popular's BCA of b1 reflects the bank's weakened financial profile, including very weak, albeit stabilising, assetquality metrics across most assets classes and weakened bottom line profitability. However, the bank's BCA also reflects Popular's strong franchise value in the SME market, its adequate capital levels and its improved liquidity profile. POPULAR'S RATING IS DETERMINED BY ITS MACRO PROFILE OF `MODERATE+' Popular is a domestic bank focused on the Spanish market and has a Macro Profile score of `Moderate+'. Spanish banks operate in a large, diversified and affluent economy, which is gradually recovering from the recession of 2012-13. The speed of the recovery is constrained primarily by the high levels of debt remaining in all sectors of the economy. Spain's (Baa2 positive) institutional strength is very high, reflecting the structural reforms of the past two years; and the country displays moderate susceptibility to event risk. The Macro Profile score also incorporates the improvement in funding conditions for financial institutions. Rating Drivers - Sound brand recognition and market positioning, especially in the SME segment - Risk absorption capacity pressured by high - albeit stabilising - level of problematic assets - Adequate capital levels aided by 2015 issuance of high-trigger contingent convertible securities (CoCos) - Weak bottom-line profitability driven by depressed recurring earnings and high credit costs - Improved liquidity profile, although repo activity is still sizeable Rating Outlook The upgrade of Popular's senior unsecured debt and deposit ratings was prompted by changes arising from the implementation of Moody's new methodology, and specifically our advanced Loss Given Failure analysis (LGF), which applies to Popular given that it is subject to an operational resolution regime under the Bank Recovery and Resolution Directive (BRRD). Popular's senior debt and deposit ratings carry a stable outlook, reflecting our expectations that the recovery of the Spanish economy will support the stabilisation of the bank's asset quality metrics and gradual improvement of its profitability. What Could Change the Rating - Up

Upward pressure on Popular's standalone BCA could be driven by clear evidence that asset quality is improving, along with a sustainable recovery in the bank's recurring earnings. Any significant macroeconomic growth beyond our central scenario of 2.7% GDP growth in 2015 could underpin signs of a turnaround. Any change to the BCA would likely also affect debt and deposit ratings, as they are linked to the standalone BCA. Popular's senior unsecured debt and deposit ratings could also change due to changes in the loss-given failure faced by these securities. What Could Change the Rating - Down Downward pressure could be exerted on Popular's standalone BCA if (1) a broad deterioration of the bank's financial fundamentals hinders its ability to preserve its solvency levels; (2) operating conditions worsen beyond Moody's current expectations; and/or (3) the bank's liquidity profile deteriorates significantly. In addition, any changes to our considerations of government support could trigger downward pressure on the bank's deposit and debt ratings. Popular's senior unsecured debt and deposit ratings could also change due to changes in the loss-given failure faced by these securities. DETAILED RATING CONSIDERATIONS SOUND BRAND RECOGNITION AND MARKET POSITIONING, ESPECIALLY IN THE SME SEGMENT With total assets of EUR166.8 billion as of end-march 2015, Popular is the sixth-largest banking group in Spain, with market shares of 8.0% in loans and 7.4% in deposits at end-december 2014. In 2012, the acquisition of Banco Pastor enabled the group to increase its exposure to the region of Galicia, where Banco Pastor had a strong presence. The bank holds particularly high market shares in products traditionally linked to the corporate segment, especially to SMEs. As such, the bank's domestic market share in loans to corporates stood at 11.9% at end-december 2014 (17% in loans to SMEs), up from 11.4% at end-march 2014. In 2013, Popular announced a strategic alliance with the Mexican Financial Group BX+ to offer banking products and services in the SME segment - both banks' key expertise - in Mexico. Popular acquired 25% of the Mexican group, while the majority shareholder of BX+ and other Mexican investors acquired 6% of the share capital of Popular. Popular has representation on the board of directors of BX+ and will lead the teams responsible for implementing the new BX+ growth plan focused on SMEs. In 2014, Popular acquired Citibank's retail banking and credit card business in Spain for EUR238.5 million, comprising 45 branches located in the main cities in Spain. The acquired business includes 1.1 million credit cards together with EUR1.4 billion of associated loans, EUR2.0 billion time and demand deposits and EUR2.3 billion assets under management (AuM). The acquisition is estimated to be profitable and will be self-funded, with the volume of acquired deposits exceeding loans. Popular will integrate most of this business into Bancopopular-e, S.A., which currently manages the entire credit card business, with the exception of AuM, which will be integrated in its private banking unit. As part of this transaction, Popular also signed an agreement with Värde Partners to sell 51% of its stake in Bancopopular-e, S.A.. RISK ABSORPTION CAPACITY PRESSURED BY HIGH - ALBEIT STABILISING - LEVEL OF PROBLEMATIC ASSETS Popular's asset-quality deterioration was initially primarily driven by the group's exposure to the real-estate development and construction sectors. However, since 2012, this deterioration - which coincided with the acquisition of Banco Pastor - accelerated in other asset classes, namely residential mortgages and corporates. At end-december 2014, the bank's NPL ratio stood at a high 19.5%, down from the peak of 20.3% as of end- December 2013 (while the same ratio for the banking system stood at 12.5%). We note that Popular has registered a stabilising trend in the NPL ratio since March 2014, with a slowdown in the formation of new problem loans. We expect this trend to continue during the next 12 months as the domestic economy gradually recovers, which will help to alleviate pressures on the bank's risk absorption capacity and gradually reduce the bank's provisioning costs. The coverage ratio - defined as NPLs as a percentage of loan loss reserves (LLR) - increased by 204 basis points (bps) in 2014 to 41%, compared to the system average of 58.1%.

In addition to NPLs, Popular has other problematic exposures related to real-estate assets acquired by the bank over the past few years. If these are included, the NPL ratio rises to 30.4%, which exceeds that of its domestic peers. Furthermore, we note the high percentage of refinanced loans at the bank (15% of gross loans at the end of December 2014). The aggregation of refinanced loans (that are not already captured in the NPL ratio) to the overall problem loan ratio (rising to 34%) indicates the magnitude of the existing balance-sheet pressures the bank faces before considering any possible further loan book deterioration. Popular's Asset Risk score of caa1 indicates that asset risk is the main rating constraint. While we incorporate within our score the stabilising trend in the NPL ratio, the score also reflects Popular's sizeable exposure to other non-earning assets, such as real-estate assets, which justifies the one-notch adjustment from the b3 macroadjusted score. ADEQUATE CAPITAL LEVELS AIDED BY 2015 ISSUANCE OF HIGH-TRIGGER COCOS Throughout the crisis, Popular has demonstrated its ability to strengthen its solvency levels without requiring any type of public support. At end-december 2014, the bank's tangible common equity (TCE) -to-risk-weighted assets (RWA) ratio stood at 8.9%, including Moody's adjustment for convertible Deferred Tax Assets (DTAs). In February 2015, the bank issued EUR750 million high-trigger contingent convertible securities (CoCos), which, if included in our TCE assessment, raises the ratio to 9.7%. This ratio justifies the Capital score of ba3, one notch above the macro-adjusted score of b1. In terms of regulatory capital ratios, Popular reported a phased-in Common Equity Tier 1 (CET1) ratio of 12.4% at end-march 2015 and a fully loaded CET1 ratio of 10.5%. In October 2014, the ECB released the results of its Comprehensive Assessment exercise. Popular's CET1 ratio of 10.6% at end-december 2013 went down by 57 bps to 10.1% after the Asset Quality Review (AQR) exercise. The ratio under the base scenario stood at 10.2%, while the one under the adverse scenario was at 7.6%, above the 8% and 5.5% minimum requirements. We note that this exercise did not consider Popular's EUR773 million Mandatory Convertible Notes, which will be converted into equity by the end of 2015 (equivalent to 91 bps). WEAK BOTTOM-LINE PROFITABILITY DRIVEN BY DEPRESSED RECURRING EARNINGS AND HIGH CREDIT COSTS Popular has traditionally reported higher-than-average profitability as a result of its (1) higher-than-average weight of loans-to-total assets; (2) focus on the inherently more profitable SME segment that translates into higher loan yields; (3) and good cost efficiency levels. Since the second half of 2012, Popular's recurring earnings have been pressured by the bank's high level of nonearning assets, historical low interest rates in Europe and subdued business growth against the background of the system's deleveraging. During 2014 and the first quarter of 2015, the bank's top-line revenues have shown a modest improvement, with the bank's pre-provision income growing by 10% and 0.2% respectively. However, we note this improvement has been supported by the bank's high level of extraordinary trading income, stemming from the sale of securities and sovereign bonds. At end-march 2015, Popular reported a net profit of EUR91 million, which represents 0.2% of the bank's tangible assets. Going forward we expect the bank to continue benefiting from Spain's improved economic conditions, which should enable it to gradually improve business volumes from current subdued levels and to face lower provisioning requirements as asset quality metrics maintain a stabilising trend. Our assigned Profitability score of b2 is higher than that suggested by historic earnings, which were weighed down by depressed recurring earnings and high credit impairments, and thus incorporates some recovery in the bank's profitability ratios. IMPROVED LIQUIDITY PROFILE, ALTHOUGH REPO ACTIVITY IS STILL SIZABLE Retail funding is Popular's main funding source (54% of total funding at end-december 2014), comparing favourably with its domestic peers. Deposit funding has recorded robust performance during the crisis, although it declined in 2014, with `sight' and `term' deposits together decreasing by EUR2.2 billion (total of EUR27 billion and EUR45 billion, respectively). Market funding represented 41% of Popular's tangible banking assets at end-december 2014. Popular took advantage in 2014 of the more favourable market conditions and issued EUR600 million of senior debt and EUR1 billion of covered bonds. In addition, during 2014 and the first quarter of 2015, the bank significantly increased its European Central Bank (ECB) funding to EUR9.6, with EUR8.7 billion borrowed from the ECB's Targeted Longerterm Refinancing Operations (TLTRO). This reliance on ECB funds, together with sizeable repo market activity,

renders Popular vulnerable to political risks and margin call risks, thus adding pressure on the bank's liquidity management in times of stress. These risks are reflected in Popular's Funding Structure score of b2. Popular's liquid banking assets accounted for 27% of its tangible banking assets at end-december 2014, which is equivalent to a Liquid Resources score of baa2. According to our liquidity stress test, the bank displays a net positive funding gap in the event that capital markets remained closed for a period of one year. Our stress test includes interbank borrowings, committed undrawn credit lines and the re-issuance of maturing covered bonds, but excludes the liquidity arising from a reduction in its commercial gap. However, the bank would not be resilient to our stress scenario of a deposit outflow of 5% for retail deposits, and 25% for corporate deposits. The stress test also assumes that debt placed among retail investors is not rolled over. Notching Considerations LOSS GIVEN FAILURE We apply our advanced Loss Given Failure analysis (LGF) to Popular given that it is subject to the EU Bank Resolution and Recovery Directive (BRRD), which we consider to be an Operational Resolution Regime. We assume residual tangible common equity of 3% and losses post-failure of 8% of tangible banking assets, a 25% run-off in "junior" wholesale deposits, a 5% run-off in preferred deposits, and assign a 25% probability to deposits being preferred to senior unsecured debt. These are in line with our standard assumptions. For Popular's deposits and senior unsecured debt, our Loss-Given Failure (LGF) analysis considers the likely impact on loss-given-failure of the combination of its own volume and subordination. Our LGF analysis indicates a very low loss-given-failure for deposits and a low loss-given-failure senior unsecured debt, which lead us to position Popular's Preliminary Rating Assessments (PRA) two notches and one notch above the Adjusted BCA, respectively. Please refer to the Loss Given Failure and Government Support table at the bottom of the scorecard. For junior securities, our initial LGF analysis confirms a high level of loss-given-failure, given the small volume of debt and limited protection from more subordinated instruments and residual equity. We also incorporate additional downward notching for junior subordinated debt and preference shares instruments to reflect coupon suspension risk ahead of a potential failure. GOVERNMENT SUPPORT The implementation of the BRRD has caused us to reconsider the potential for government support to benefit certain creditors of Popular. We now consider the probability of systemic support for Popular's deposits and senior instruments to be moderate in line with our view of its domestic systemic importance. For other junior securities, we continue to believe that the potential for government support is low and these ratings do not include any related uplift. COUNTERPARTY RISK ASSESSMENT CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. Popular's CR Assessment is positioned at Baa3 (cr). The CR Assessment, prior to government support, is positioned three notches above the Adjusted BCA of b1, based on the cushion against default provided to the senior obligations represented by the CR Assessment by subordinated instruments amounting to 18% of Tangible Banking Assets. The main difference with our Advanced LGF approach used to determine instrument ratings is that the CR Assessment captures the probability of default on certain senior obligations, rather than expected loss, therefore we focus purely on subordination and take no account of the volume of the instrument class. The CR Assessment also benefits from one notch of government support, in line with our support assumptions on deposits and senior unsecured debt. This reflects our view that any support provided by governmental authorities to a bank which benefits senior unsecured debt or deposits is very likely to benefit operating activities and obligations reflected by the CR Assessment as well, consistent with our belief that governments are likely to

maintain such operations as a going-concern in order to reduce contagion and preserve a bank's critical functions. About Moody's Bank Scorecard Our Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity. Rating Factors Banco Popular Español, S.A. Macro Factors Weighted Macro Profile Moderate + Financial Profile Factor Historic Ratio Macro Adjusted Score Solvency Asset Risk Problem Loans / Gross Loans Credit Trend Assigned Score Key driver #1 19.5% b3 caa1 Non lending credit risk Capital TCE / RWA 8.9% b1 ba3 Expected trend Profitability Net Income / Tangible Assets -0.7% caa2 b2 Expected trend Combined Solvency Score b3 b2 Liquidity Funding Structure Market Funds / Tangible Banking Assets Liquid Resources Liquid Banking Assets / Tangible Banking Assets 41.5% b2 b2 Market funding quality 27.0% baa2 baa2 Stock of liquid assets Combined Liquidity Score ba2 ba2 Key driver #2 Financial Profile b1 Qualitative Adjustments Adjustment Business Diversification 0 Opacity and Complexity 0 Corporate Behavior 0 Total Qualitative Adjustments 0 Sovereign or Affiliate constraint Baa2

Scorecard Calculated BCA range ba3 - b2 Assigned BCA b1 Affiliate Support notching 0 Adjusted BCA b1 Instrument Class Loss Given Failure notching Additional notching Preliminary Rating Assessment Government Support notching Local Currency rating Foreign Currency rating Deposits 2 0 ba2 1 Ba1 Ba1 Senior unsecured bank 1 0 ba3 1 (P)Ba2 debt Dated subordinated bank debt -1 0 b2 0 B2 Non-cumulative bank preference shares -1-2 caa1 0 Caa1(hyb) This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on http://www.moodys.com for the most updated credit rating action information and rating history. 2015 Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ( MIS ) ARE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY S ( MOODY S PUBLICATIONS ) MAY INCLUDE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY S OPINIONS INCLUDED IN MOODY S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. CREDIT RATINGS AND MOODY S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY S CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY S CREDIT RATINGS OR MOODY S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU

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