FINANCIAL INSTITUTIONS

CREDIT OPINION Bayerische 16 December 2019 Update to credit analysis

Update Summary Bayerische Landesbank's (BayernLB) Aa3/P-1 deposit, debt and Counterparty Risk Ratings (CRRs) were unaffected by the recent change in the bank's weighted Macro Profile to Strong + from Very Strong-. Similarly, its baa2 Baseline Credit Assessment (BCA) and baa1 Adjusted BCA, A2 junior senior unsecured debt and Baa2 subordinate debt ratings were unaffected. RATINGS The bank's long-term debt and deposit ratings carry a stable outlook. Bayerische Landesbank Domicile BayernLB's ratings reflect (1) its baa2 BCA; (2) its baa1 Adjusted BCA, incorporating Long Term CRR Aa3 our unchanged assessment of a high probability of affiliate support from Sparkassen- Type LT Counterparty Risk Finanzgruppe (S-Finanzgruppe, Aa2 negative, a2)1, which results in a one-notch rating uplift; Rating - Fgn Curr Outlook Not Assigned (3) the result of our Advanced Loss Given Failure (LGF) analysis, which provides three notches Long Term Debt Aa3 of rating uplift to the bank's senior unsecured debt and deposit ratings; and (4) its moderate Type Senior Unsecured - Fgn probability of receiving government support, yielding a support uplift of one notch. Curr Outlook Stable BayernLB's baa2 BCA reflects the bank's sound asset quality and risk-weighted capital Long Term Deposit Aa3 ratios, as well as its ability to mitigate its partial dependence on wholesale market funding Type LT Bank Deposits - Fgn Curr through access to readily available and additional liquid resources. BayernLB's BCA remains Outlook Stable constrained by its concentrated exposures to the commercial real estate (CRE) and renewable energy sectors and by the low profitability of the bank's operations, excluding its Please see the ratings section at the end of this report 2 for more information. The ratings and outlook shown core subsidiary Deutsche Kreditbank AG (DKB, A1/A1 stable, baa2) . Furthermore, the bank's reflect information as of the publication date. low level of nominal leverage continues to weigh on its overall financial profile.

Exhibit 1 Rating Scorecard - Key financial ratios Contacts BayernLB (BCA: baa2) Median baa2-rated banks Bernhard Held, CFA +49.69.70730.973 18% 54% VP-Sr Credit Officer 16% 48% [email protected] 14% 42% Liquidity Liquidity Factors Alexander Hendricks, +49.69.70730.779 12% 36% CFA 10% 30% Associate Managing Director 8% 24% [email protected] 6% 18% SolvencyFactors 4% 12% 2.0% 2% 6% 16.4% 0.3% 44.4% 32.4% CLIENT SERVICES 0% 0% Asset Risk: Capital: Profitability: Funding Structure: Liquid Resources: Americas 1-212-553-1653 Problem / Tangible Common Net Income/ Market Funds/ Liquid Banking Gross Loans Equity/Risk-Weighted Tangible Assets Tangible Banking Assets/Tangible Asia Pacific 852-3551-3077 Assets Assets Banking Assets Solvency Factors (LHS) Liquidity Factors (RHS) Japan 81-3-5408-4100 Asset risk and profitability ratios are calculated as the weaker of the three-year average and the latest annual or 12-month figure. EMEA 44-20-7772-5454 Source: Moody's Financial Metrics MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths » Sound asset quality

» Sustainable high risk-weighted capitalisation

» Sound liquidity to balance its dependence on market funding

Credit challenges » High sector concentrations related to CRE and utilities

» Profitability challenged by low interest rates and cost pressures

» Partial dependence on wholesale funding

Outlook The outlook is stable and reflects our expectation that, despite the continued strain on profitability, the bank will be able to at least sustain its improved solvency over the next 12-18 months, supported by a benign domestic credit environment. Factors that could lead to an upgrade » An upgrade of BayernLB's ratings would be likely in the event of an upgrade of the bank's BCA. BayernLB's junior senior unsecured and lower-ranking liabilities could also face upward rating pressure if the volume of the bank's subordinated instruments increases significantly relative to its tangible banking assets, which could result in an additional uplift from our Advanced LGF analysis. The bank’s deposit and senior unsecured ratings already benefit from the maximum possible rating uplift from our Advanced LGF analysis.

» A further upgrade of BayernLB's baa2 BCA could result from a combination of a (1) significant reduction in the bank's concentration risk, specifically with regard to its CRE exposures; (2) significant and sustained improvement in its capitalisation; and (3) sustainable improvement in groupwide profitability.

Factors that could lead to a downgrade » A downgrade of BayernLB's ratings could be triggered following (1) a more-than-one notch downgrade of the bank's BCA; (2) a change in the bank's ownership structure, and a deterioration in the implied creditworthiness of S-Finanzgruppe; (3) weakening cross-sector support assumptions; or (4) a reduction in the rating uplift as a result of our Advanced LGF analysis.

» Downward pressure on the bank's BCA could occur because of a (1) significant change in its business focus in case of an ownership change; (2) deterioration in the bank's financial strength, especially if it is followed by an unexpected and sustained weakening in its capital adequacy metrics; or (3) material deterioration in the bank's asset quality or decline in its liquidity reserves.

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 www.moodys.com for the most updated credit rating action information and rating history.

2 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Key indicators

Exhibit 2 Bayerische Landesbank (Consolidated Financials) [1]

06-192 12-182 12-172 12-162 12-152 CAGR/Avg.3 Total Assets (EUR Billion) 234.8 215.7 209.8 204.9 207.9 3.54 Total Assets (USD Billion) 267.4 246.6 251.9 216.2 225.8 4.94 Tangible Common Equity (EUR Billion) 11.1 11.1 10.3 10.5 10.4 1.94 Tangible Common Equity (USD Billion) 12.7 12.7 12.4 11.1 11.3 3.34 Problem Loans / Gross Loans (%) 1.2 1.3 2.6 2.7 4.2 2.45 Tangible Common Equity / Risk Weighted Assets (%) 16.4 16.9 16.8 16.1 15.0 16.26 Problem Loans / (Tangible Common Equity + Loss Reserve) (%) 14.7 15.0 30.8 30.4 43.5 26.95 Net Interest Margin (%) 0.8 0.8 0.8 0.7 0.8 0.85 PPI / Average RWA (%) 1.0 1.0 1.1 0.9 1.4 1.16 Net Income / Tangible Assets (%) 0.3 0.4 0.3 0.2 0.3 0.35 Cost / Income Ratio (%) 72.7 71.0 69.3 70.3 60.7 68.85 Market Funds / Tangible Banking Assets (%) 44.0 44.4 44.1 44.2 44.7 44.35 Liquid Banking Assets / Tangible Banking Assets (%) 34.8 32.4 32.1 30.0 30.4 31.95 Gross Loans / Due to Customers (%) 140.4 148.6 146.5 155.3 157.9 149.75 [1]All figures and ratios are adjusted using Moody's standard adjustments. [2]Basel III - fully-loaded or transitional phase-in; IFRS. [3]May include rounding differences due to scale of reported amounts. [4]Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime. [5]Simple average of periods presented for the latest accounting regime. [6]Simple average of Basel III periods presented. Source: Moody's Investors Service; Company Filings

Profile Bayerische Landesbank (BayernLB) is a German universal bank offering financial products and services to retail customers, medium- sized and large corporate clients, and real estate customers. BayernLB fully owns Deutsche Kreditbank AG (DKB), a commercial bank that conducts public-sector, corporate and online retail operations. BayernLB's four operating segments are corporates and Mittelstand, real estate and savings banks, DKB and financial markets, of which DKB is the group's highest revenue and profit contributor. BayernLB provides its services from its head office in , and through international branches in New York, London, Milan and Paris, as well as domestic offices in Düsseldorf, Berlin, Frankfurt, Hamburg, Stuttgart and Leipzig, and through its branch office in Nuremberg. As of June 2019, BayernLB had 8,061 employees.

BayernLB reported consolidated assets of €240 billion as of June 2019. The bank is majority owned by the Free State of (Aaa stable) and is a member of S-Finanzgruppe. For more information, please see BayernLB's Issuer profile and our German Banking System Profile.

Weighted Macro Profile of Strong (+) BayernLB's lending business has a strong domestic focus and, accordingly, its Macro Profile is aligned with Germany's Macro Profile, which we recently lowered to Strong+ from Very Strong-. Recent developments On 14 November, BayernLB reported pretax profit of €433 million for the first nine months of 2019, down from €716 million for the first three quarters in the year earlier. BayernLB maintained stable net interest income (€1.3 billion) and net fee income (€0.2 billion), but had lower one-off gains, limited to a tax credit that drove up its other income to €123 million from €55 million a year earlier.

The bank's operating expenses rose by almost €100 million to €1.1 billion, reflecting its investment in growth (including customer growth at DKB and sales activities at BayernLB), as well as higher IT and regulatory project costs and strategic initiatives. Risk provisions of €8 million (-€122 million for the first nine months of the previous year) remained unsustainably low, but did not benefit to the same extent from last year's writebacks.

Overall, BayernLB reported strong growth in business volumes across the board, reflected in an increase in its balance-sheet size to €244.2 billion as of September 2019 from €220.2 billion as of year-end 2018. The resulting growth in risk-weighted assets (RWA) to

3 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

€68.3 billion from €65.6 billion was not matched by additional Common Equity Tier 1 (CET1) capital, which led to a decline in the regulatory CET1 ratio to 14.5% as of September 2019 from 15.2% as of year-end 2018.

At present, the bank is reassessing its future strategic positioning. On 14 November, the bank's CEO Stephan Winkelmeier stated that the merger between the bank's capital market business with its corporate customer units is one initial outcome of this process. The bank expects to pursue growth opportunities in the other two segments that also were the strongest drivers of the group's nine month results, DKB (€241 million pretax segment result) and CRE. Detailed credit considerations BayernLB's asset quality is sound and benefits from the settlement with Heta, but concentrated sector exposures could make it vulnerable in the event of a downturn We assign an Asset Risk score of baa1 to BayernLB, three notches below the a1 initial score, which takes into consideration the risks that are not captured by the bank's problem loan ratios — particularly sector concentration risks and market risks — for which we apply negative adjustments.

In December 2018, Heta Asset Resolution AG (Heta, Aa1)3 announced that it had reached a final settlement with the creditors of its disputed claims. As a result of this agreement, all open litigation between Heta and BayernLB was settled. We understand BayernLB would continue to benefit alongside other senior creditors of Heta from a higher ultimate asset recovery. On 23 May 2019, Heta updated its wind-down plan and expects a 87% recovery rate, up from 81.3% as of June 2018. This implies a loss rate for senior unsecured creditors, including BayernLB, slightly lower than the current 14.5% haircut on Heta's senior liabilities, which was reduced by the Austrian Financial Market Authority on 26 March 2019.

Supported by the settlement, BayernLB's nonperforming loan ratio improved further to 1.2% as of June 2019 (year-end 2018: 1.3%, 2017: 2.6%), well covered by loan-loss reserves, which represented 57% of its gross problem loans (up from 33% as of year-end 2017).

Exhibit 3 BayernLB successfully decreased its legacy exposures

Problem Loans / Gross Loans (lext axis) Coverage ratio (right axis) 3.0% 60%

2.5% 50%

2.0% 40%

1.5% 30%

1.0% 20%

0.5% 10%

0.0% 0% 2016 2017 2018 H1 2019 The problem loan ratio is as per our definition. Source: Company reports and Moody's Investors Service

BayernLB's €52.7 billion CRE exposure as of June 2019 (December 2018: €50.1 billion) represents a relatively high 5x its CET1 capital. This concentration is somewhat mitigated by BayernLB's pronounced focus on multifamily housing (€31.8 billion as of year-end 2018), focused on the German market, in which 90% of BayernLB's overall CRE exposure originates, and a large €18.9 billion sub-portfolio within the multifamily portfolio of lower-risk financings for social housing, sponsored by German municipalities. BayernLB's second- largest sector concentration is in utilities, totalling €23.9 billion as of June 2019. With an increasing portion of exposures related to renewable energy financings, the bank is exposed to policy changes in this highly regulated sector. Most of the group's utilities exposure and the retail banking exposure is housed at its 100% subsidiary, DKB.

4 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Sound capital ratios BayernLB's financial strength is underpinned by its sound capital ratios and ability to generate capital through profit retention. We assign a Capital score of a3 to BayernLB, positioned four notches below the aa2 initial score, because we include negative adjustments for the bank's elevated leverage; the potential for higher RWA in a less benign credit environment or in more volatile markets; and prospective organic growth. In addition, the a3 Capital score incorporates the significant differences in capital ratios among BayernLB, DKB and Bayerische Landesbodenkreditanstalt (BayernLabo, Aaa/Aaa stable)4, a fully consolidated regional development bank, which we expect to partially limit the fungibility of capital among these entities.

In 2018, BayernLB's efforts to expand in several areas of its core lending business translated into RWA growth, which was broadly proportional to the bank's increase in absolute capital levels from profit retention. In this context, the bank maintained broadly stable capital ratios as of year-end 2018.

BayernLB's tangible common equity (TCE) of €11.1 billion as of June 2019 doesn't include the bank's half-year profit and does not reflect regulatory deductions of €0.4 billion applied to the bank's CET1 capital. These deductions are the key driver behind the gap between the 16.4% TCE ratio as of June 2019 and the 14.1% fully loaded CET1 and Tier 1 ratios. The regulatory CET1 ratio comfortably exceeds the 2019 minimum requirement of 10.1%, as determined under the Supervisory Review and Evaluation Process, and is adequate in the context of its risk profile.

Exhibit 4 Exhibit 5 BayernLB's solid levels of capital BayernLB's Tier 1 capital requirements in detail

TCE ratio CET1 ratio TCE leverage Pillar 1 - CET1 Pillar 1 - Tier 1 Pillar 2 18% 16.8% 16.9% 16.4% Capital conservation buffer Countercyclical buffer O-SII buffer 16% 15.3% 15.2% 14.1% 14% 14% 11.60% 12% 10.54% 12% 10% 9.20% 10% 8% 8% 6% 6% 4.9% 5.1% 4.7% 4% 4%

2% 2%

0% 0% 2017 2018 H1 2019 2017 2018 2019 TCE = Tangible common equity (Moody's calculation). CET1 = Common Equity Tier 1 The exhibit displays transitional buffer requirements. BayernLB's CET1 capital (fully-loaded). requirements are 1.5% below its Tier 1 requirements. Source: Company reports and Moody's Investors Service Source: Company reports

Although BayernLB's CET1 ratio is in line with the German market average, its leverage remains below average. The bank reported a fully loaded regulatory Tier 1 leverage ratio of 3.7% as of 30 September 2019, down from 4.1% as of year-end 2018. We expect this ratio to improve upon the entry into force of the updated capital requirement regulation (CRR2), under which intra-sector and promotional lending exposures will be excluded from the ratio's denominator.

Profitability is challenged by low interest rates We assign a ba3 Profitability score, which is one notch below the ba2 initial score, illustrating that BayernLB's modest profitability constrains its credit profile and reflecting our expectation of a normalisation of loan-loss provisioning levels during the credit cycle. The ba3 score also reflects the growing role of the more cost-efficient subsidiary DKB within the group.

BayernLB's high dependence on interest income has rather intensified with the growth of its main earnings contributor, DKB. At the same time, DKB's relative earnings stability will continue to reduce earnings volatility, and with its superior cost-income dynamics, the subsidiary will help mitigate revenue and cost pressures in the group's corporate and real estate segments in the coming years. Against this background, BayernLB decided to give its subsidiary DKB further room for growth, allowing it to retain €200 million of its €317 million pretax segment profit (2017: €272 million).

5 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

BayernLB reported pretax income of €869 million in 2018, up 33% from 2017, mainly as a result of one-off items, such as the reversal of loan-loss provisions. Adjusted for one-offs, the pretax result was €521 million, down from €649 million in 2017. The extraordinary loan-loss recoveries in 2018 reflected both the bank's settlement of its litigation cases with Heta and the benign economic environment in Germany, which drove problem loans/gross loans further to 0.8%, according to the bank (December 2017: 1.0%, excluding the Heta claims). The bank's improved net interest income (€1,742 million, up €83 million) was offset by higher operating expenses of €1,356 million, up €98 million.

Exhibit 6 BayernLB has steadily improved its earnings after the crisis

Net interest Income Net fees and commissions income Trading & other income Operating Expenses Risk provisions Extraordinary income and expense Pre-tax profit

4.0

3.0 0.8 0.4 0.7 0.4 0.2 0.4 2.0 0.4 0.3 0.2 0.3 0.3 0.3 0.3 1.0 1.8 1.7 1.8 1.7 1.6 1.7 0.0

€ billion -1.5 -1.5 -1.0 -1.6 -1.6 -1.6 -1.7

-2.0 -1.5 -3.0

-4.0 2014 2015 2016 2017 2018 2019 Source: Company reports, Moody's Financial Metrics and Moody's Investors Service estimates

BayernLB's reported pretax income of €433 million in September 2019 was significantly lower than a year ago (€716 million). This was driven mainly by lower one-off income and as a result of high release of risk provisions in Corporates & Mittelstand segment in the previous year. DKB contributed a lower amount to the bank's result due to a lower net interest income and higher administrative expenses. The allocated risk provisions were very low in this period.

BayernLB's funding profile remains in part dependent on wholesale markets We assign a Funding Structure score of baa3 to BayernLB, four notches above the b1 initial score, which includes positive adjustments for the bank's low-cost covered issuances and pass-through concessionary funding from Germany's development banks, included in interbank liabilities. In light of its large outstanding amount of junior senior unsecured liabilities, we believe minimum requirements for own funds and eligible liabilities (MREL) will represent a manageable additional constraint for the bank's funding strategy.

Exhibit 7 BayernLB's dependence on market funding has declined as a result of deposit growth Composition of market funding sources

Equity Other liabilities Trading liabilities Issued securities Interbank Deposits Market Funds Ratio* (right axis) 100% 50% 90% 49% 80% 48% 70% 47% 60% 46% 50% 44.7% 45% 40% 44% 44.4% 44.0% 44.2% 44.1% 30% 43% 20% 42% 10% 41% 0% 40% 2015 2016 2017 2018 H1 2019

*Market funds ratio = market funds/tangible banking assets. Source: Company reports and Moody's Investors Service

6 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Although BayernLB's €138.9 billion of gross customer loans were almost twice the group's €72.4 billion of customer deposits (foremost sourced through DKB) as of year-end 2018, the bank's actual reliance on wholesale funds is reduced through the use of €32.5 billion of funding from development banks (foremost through its in-house regional development bank BayernLabo) and through covered bonds issued by BayernLB and DKB (€29.3 billion of outstanding issuances between them as of year-end 2018).

As of year-end 2018, BayernLB reported €21.6 billion of interbank liabilities (excluding pass-through funds) and €28.8 billion of junior senior unsecured liabilities, of which €17.7 billion had been placed as bearer bonds and the remainder had been sourced through private placement products (registered bonds and promissory notes). In addition, about half of the group's €3.5 billion of senior unsecured liabilities outstanding had been sourced through private placement products, which further mitigates the bank's overall reliance on wholesale funding. For 2019, BayernLB (excluding BayernLabo) plans to source €4.5 billion in unsecured and secured funding each, above previous years' issuance levels, but manageable for the bank.

BayernLB's sound liquidity reserves mitigate funding risks BayernLB's sound liquidity is reflected in its assigned Liquidity score of baa1. Our negative adjustment from the a2 initial score includes negative adjustments for encumbered liquid assets used as collateral and pass-through interbank claims related to promotional loans.

Exhibit 8 BayernLB's liquid resources have remained at a high level Composition of liquid assets

Other assets Loans Securities/Investments Interbank Cash Liquid Banking Asset Ratio (right axis) 100% 40% 90% 38% 80% 36% 70% 32.4% 34.8% 34%

60% 30.4% 30.0% 32% 32.1% 50% 30% 40% 28% 30% 26% 20% 24% 10% 22% 0% 20% 2015 2016 2017 2018 H1 2019

*Liquid banking assets ratio = liquid assets/tangible banking assets. Source: Company reports and Moody's Investors Service

BayernLB and DKB possessed significant issuance leeway, under their respective public-sector and mortgage covered bond programmes, of more than €16 billion as of year-end 2018 before the programmes would hit required minimum overcollateralisation levels to maintain their current Aaa ratings.

BayernLB's short-term liquidity gaps from funding mismatches are suitably covered by liquidity buffers. The bank's comfortable liquidity profile is illustrated by its liquidity coverage ratios of 143% as of December 2018 (2017: 159%) and 159% as of 30 September 2019. Environmental, social and governance (ESG) considerations The global banking sector has been classified as “Low” risk in our environmental (E) risk heatmap5 and as “Moderate” risk in our social (S) risk heatmap.6 BayernLB's exposure to E and S risks is in line with our general assessment for the global banking industry.

BayernLB's loan book is well-diversified by industry. Moreover, the bank's subsidiary DKB has a strong focus on conducting sustainable business with one of the largest renewables financing portfolio in Germany and refinances itself with green and social bond programs. Thus, we evaluate the bank to have an overall low exposure to Environmental risks.

In terms of social risks, BayernLB's exposure through consumer lending products is in our view limited by the foremost amortising (rather than revolving) nature of consumer loans handed out at a limited scale by DKB, which for the most part are directed towards borrowers with a sound repayment capacity. BayernLB's large multi-family housing loan exposures could in principle be negatively impacted by unconventional policy interventions in local rental markets, but the typically low rents charged by public-sector owned housing companies, which account for a large portion of BayernLB's exposures, reduce the risk of a direct impact on cash flows for the underlying properties.

7 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Governance7 is highly relevant for BayernLB, as it is to all banks, but more specifically due to the complexity of its multi-country operations. However, we do not have any particular governance concern for BayernLB, and we do not apply any corporate behaviour adjustment to the bank, largely owing to the reduction of BayernLB's non-domestic activities over the past years. Nonetheless, corporate governance remains a key credit consideration given new emerging risks and continues to be a subject of our ongoing monitoring. Support and structural considerations Affiliate support BayernLB benefits from S-Finanzgruppe's cross-sector support, which reduces the probability of default because such support would be available for stabilising a distressed member bank and not just compensating for losses in resolution. Our assumption of high cross- sector support provides one notch of rating uplift, leading to an Adjusted BCA of baa1.

Loss Given Failure (LGF) analysis BayernLB is subject to the European Union (EU) Bank Recovery and Resolution Directive, which we consider an operational resolution regime. Therefore, we apply our Advanced LGF analysis, where we consider the risks faced by the different debt and deposit classes across the liability structure should the bank enter resolution.

Our Advanced LGF analysis follows the insolvency legislation in Germany that became effective on 21 July 2018. Following the change in law, the legal hierarchy of bank claims in Germany is now consistent with that in most other EU countries, where statutes do not provide full preference to deposits over senior unsecured debt. However, in our Advanced LGF analysis, we now consider not only the results of the formal legal position (pari passu or de jure scenario), to which we assign a 75% probability, but also an alternative liability ranking, reflecting the resolution authority's discretion to prefer deposits over senior unsecured debt (full depositor preference or de facto scenario), to which we assign a 25% probability. In line with our standard assumptions, we further assume a residual TCE of 3%, post-failure losses of 8% of tangible banking assets, a 25% runoff in junior wholesale deposits and a 5% runoff in preferred deposits.

» For BayernLB's deposits and senior unsecured debt, rated Aa3, our LGF analysis indicates an extremely low loss given failure, leading to a three-notch uplift from the bank's baa1 Adjusted BCA.

» For junior senior unsecured debt, rated A2, our LGF analysis indicates a very low loss given failure, leading to a two-notch uplift from its baa1 Adjusted BCA.

» For subordinated debt, rated Baa2, our LGF analysis indicates a high loss given failure, leading us to position the rating one notch below the baa1 Adjusted BCA.

» For junior subordinated debt instruments (Genussscheine), rated Baa3(hyb), additional notching applies to reflect the junior subordinated claim in liquidation and cumulative coupon deferral features tied to the breach of a balance-sheet loss trigger.

Government support considerations Given its size on a consolidated basis, we consider S-Finanzgruppe domestically and systemically relevant. Therefore, we assume a moderate probability of German government support for all members of the sector, in line with our support assumptions for other systemically relevant banking groups in Europe. For BayernLB, this results in an additional government support uplift of one notch for its long-term senior unsecured debt and deposit ratings.

Counterparty Risk Ratings (CRRs) CRRs are opinions of the ability of entities to honour the uncollateralised portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honoured. CRRs are distinct from ratings assigned to senior unsecured debt instruments and from issuer ratings because they reflect that, in a resolution, CRR liabilities might benefit from preferential treatment compared with senior unsecured debt. Examples of CRR liabilities include the uncollateralised portion of payables arising from derivatives transactions and the uncollateralised portion of liabilities under sale and repurchase agreements.

8 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

BayernLB's CRRs are positioned at Aa3/P-1 The CRRs, before government support, are positioned three notches above the Adjusted BCA of baa1, reflecting the extremely low loss given failure from the high volume of instruments that are subordinated to CRR liabilities. BayernLB's CRRs benefit from one notch of rating uplift based on government support, in line with our support assumptions on deposits and senior unsecured debt.

Counterparty Risk (CR) Assessment The CR Assessment is an opinion 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 expected financial loss, 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 (for example, swaps), letters of credit, guarantees and liquidity facilities.

BayernLB's CR Assessment is positioned at Aa3(cr)/P-1(cr) The CR Assessment, before government support, is positioned three notches above the Adjusted BCA of baa1, reflecting the extremely low loss given failure. BayernLB's CR Assessments benefit from one notch of rating uplift based on government support, which is in line with our support assumptions on deposits and senior unsecured debt. Methodology and scorecard The principal methodology used in rating BayernLB is our Banks methodology, published in November 2019.

About Moody's Bank Scorecard Our scorecard is designed to capture, express and explain in summary form our Rating Committee's judgement. When read in conjunction with our research, a fulsome presentation of our judgement 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.

9 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Rating methodology and scorecard factors

Exhibit 9 Bayerische Landesbank Macro Factors Weighted Macro Profile Strong + 100%

Factor Historic Initial Expected Assigned Score Key driver #1 Key driver #2 Ratio Score Trend Solvency Asset Risk Problem Loans / Gross Loans 2.0% a1 ←→ baa1 Sector concentration Market risk Capital Tangible Common Equity / Risk Weighted Assets 16.4% aa2 ←→ a3 Nominal leverage Expected trend (Basel III - fully loaded) Profitability Net Income / Tangible Assets 0.3% ba2 ↓ ba3 Expected trend Return on assets Combined Solvency Score a2 baa2 Liquidity Funding Structure Market Funds / Tangible Banking Assets 44.4% b1 ←→ baa3 Extent of market Expected trend funding reliance Liquid Resources Liquid Banking Assets / Tangible Banking Assets 32.4% a2 ←→ baa1 Asset encumbrance Stock of liquid assets Combined Liquidity Score ba1 baa2 Financial Profile baa2 Qualitative Adjustments Adjustment Business Diversification 0 Opacity and Complexity 0 Corporate Behavior 0 Total Qualitative Adjustments 0 Sovereign or Affiliate constraint Aaa BCA Scorecard-indicated Outcome - Range baa1 - baa3 Assigned BCA baa2 Affiliate Support notching 1 Adjusted BCA baa1

Balance Sheet in-scope % in-scope at-failure % at-failure (EUR Million) (EUR Million) Other liabilities 109,853 46.8% 118,629 50.6% Deposits 82,245 35.0% 73,856 31.5% Preferred deposits 60,861 25.9% 57,818 24.6% Junior deposits 21,384 9.1% 16,038 6.8% Senior unsecured bank debt 4,052 1.7% 4,052 1.7% Junior senior unsecured bank debt 29,377 12.5% 29,377 12.5% Dated subordinated bank debt 1,665 0.7% 1,665 0.7% Junior subordinated bank debt 415 0.2% 29 0.0% Preference shares (bank) 28 0.0% 27 0.0% Equity 7,040 3.0% 7,040 3.0% Total Tangible Banking Assets 234,675 100.0% 234,675 100.0%

10 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Debt Class De Jure waterfall De Facto waterfall Notching LGF Assigned AdditionalPreliminary Instrument Sub- Instrument Sub- De Jure De Facto Notching LGF Notching Rating volume + ordination volume + ordination Guidance notching Assessment subordination subordination vs. Adjusted BCA Counterparty Risk Rating 24.8% 24.8% 24.8% 24.8% 3 3 3 3 0 a1 Counterparty Risk Assessment 24.8% 24.8% 24.8% 24.8% 3 3 3 3 0 a1 (cr) Deposits 24.8% 16.3% 24.8% 18.0% 3 3 3 3 0 a1 Senior unsecured bank debt 24.8% 16.3% 18.0% 16.3% 3 3 3 3 0 a1 Junior senior unsecured bank debt 16.3% 3.7% 16.3% 3.7% 2 2 2 2 0 a2 Dated subordinated bank debt 3.7% 3.0% 3.7% 3.0% -1 -1 -1 -1 0 baa2 Junior subordinated bank debt 3.0% 3.0% 3.0% 3.0% -1 -1 -1 -1 -1 baa3

Instrument Class Loss Given Additional Preliminary Rating Government Local Currency Foreign Failure notching notching Assessment Support notching Rating Currency Rating Counterparty Risk Rating 3 0 a1 1 Aa3 Aa3 Counterparty Risk Assessment 3 0 a1 (cr) 1 Aa3(cr) Deposits 3 0 a1 1 Aa3 Aa3 Senior unsecured bank debt 3 0 a1 1 Aa3 Aa3 Junior senior unsecured bank debt 2 0 a2 0 A2 A2 Dated subordinated bank debt -1 0 baa2 0 Baa2 Baa2 Junior subordinated bank debt -1 -1 baa3 0 Baa3 (hyb) [1]Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information. Source: Moody’s Investors Service

Ratings

Exhibit 10 Category Moody's Rating BAYERISCHE LANDESBANK Outlook Stable Counterparty Risk Rating Aa3/P-1 Bank Deposits Aa3/P-1 Baseline Credit Assessment baa2 Adjusted Baseline Credit Assessment baa1 Counterparty Risk Assessment Aa3(cr)/P-1(cr) Issuer Rating Aa3 Senior Unsecured Aa3 Junior Senior Unsecured A2 Junior Senior Unsecured MTN -Dom Curr (P)A2 Subordinate Baa2 Jr Subordinate -Dom Curr Baa3 (hyb) Commercial Paper -Dom Curr P-1 Other Short Term -Dom Curr (P)P-1 DEUTSCHE KREDITBANK AG Outlook Stable Counterparty Risk Rating A1/P-1 Bank Deposits A1/P-1 Baseline Credit Assessment baa2 Adjusted Baseline Credit Assessment baa1 Counterparty Risk Assessment A1(cr)/P-1(cr) Issuer Rating A1 Junior Senior Unsecured -Dom Curr A2 ST Issuer Rating P-1 Source: Moody's Investors Service

11 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Endnotes 1 The ratings shown are S-Finanzgruppe's corporate family rating and outlook, and its BCA. 2 The ratings shown are DKB's deposit and issuer ratings and outlook, and its BCA. 3 The rating shown is Heta's backed subordinated debt rating. 4 The ratings shown are BayernLaBo's backed deposit and backed senior unsecured ratings and outlook. Both the ratings benefit from an explicit refinancing guarantee by the Free State of Bavaria (Aaa stable), which fully, unconditionally and irrevocably guarantees all liabilities issued by BayernLabo. 5 Environmental risks can be defined as environmental hazards encompassing the impacts of air pollution, soil/water pollution, water shortages and natural and man-made hazards (physical risks). Additionally, regulatory or policy risks, like the impact of carbon regulation or other regulatory restrictions, including the related transition risks like policy, legal, technology and market shifts, that could impair the evaluation of assets are an important factor. Certain banks could face a higher risk from concentrated lending to individual sectors or operations exposed to the aforementioned risks. 6 Social risk considerations represent a broad spectrum, including customer relations, human capital, demographic and societal trends, health and safety and responsible production. The most relevant social risks for banks arise from the way they interact with their customers. Social risks are particularly high in the area of data and customer privacy, which is partly mitigated by sizeable technology investments and banks’ long track record of handling sensitive client data. Fines and reputational damage because of product mis-selling or other types of misconduct is a further social risk. Societal trends are also relevant in a number of areas, such as shifting customer preferences toward digital banking services increasing information technology costs, ageing population concerns in several countries affecting demand for or socially driven policy agendas that may translate into regulations that affect banks’ revenue bases. 7 Corporate governance is a well-established key driver for banks and related risks are typically included in our evaluation of the banks' financial profile. Further factors like specific corporate behaviour, key person risk, insider and related-party risk, strategy and management risk factors and dividend policy may be captured in individual adjustments to the BCA, if deemed applicable. Corporate governance weaknesses can lead to a deterioration in a company’s credit quality, while governance strengths can benefit its credit profile. When credit quality deteriorates due to poor governance, such as break-down in controls resulting in financial misconduct, it can take a long time to recover. Governance risks are also largely internal rather than externally driven.

12 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

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13 16 December 2019 Bayerische Landesbank: Update to credit analysis MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

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14 16 December 2019 Bayerische Landesbank: Update to credit analysis