European : IFRS 9 impact on BankFocus Research 17 June 2019 financials is manageable Irakli Pipia Xian (Peter) Li

Leading European banks1 absorbed anticipated negative impact from the adoption of IFRS 9 without significant impact on their financials. In fact, asset quality and total provisioning coverage ratios improved across the board, despite contrary expectations. The negative impact from the adoption of IFRS 9 on regulatory CET 1 capital was most prominent for Spanish and Italian banks, but manageable for other European entities.

• European banks adopted IFRS 9 accounting standards on 1 Impaired loans / Gross customer January 2018 which requires earlier recognition of credit loans & advances, YE 2018 vs losses compared to the existing IAS 39 accounting standards. YE 2017 (%) • Impaired loan (Stage 3) ratios improved under IFRS 9 compared to the same category as per IAS 39 standards for Company Name 2018 2017 Change almost all surveyed European banks (see exhibit). 8.1 11.1 -3.0 6.3 8.8 -2.5 • Consequently, the total provisioning coverage of impaired Caixa 4.8 6.2 -1.4 loans improved, while specific provisioning (Stage 3 Expected Sabadell 4.4 5.4 -1.0 Credit Losses vs Stage 3 loans) at 45% remains adequate as KBC 4.4 6.3 -1.9 at end-2018. BNP 4.3 5.0 -0.7 • Contrary to the original expectations, Loan loss reserves as BBVA 4.2 5.0 -0.8 percentage of Gross loans declined under IFRS 9, with the 4.2 12.9 -8.7 accounting impact absorbed by banks’ regulatory capital. Santander 3.7 4.2 -0.5 • The selected European banks benefited from declining BPCE 3.2 3.5 -0.3 impairment charges as a percentage of their Operating Credit Agricole 2.6 3.1 -0.5 profits suggests improving asset quality trends during 2018. ABN AMRO 2.2 2.5 -0.3 However, this did not translate in enhanced retention of net 1.5 1.9 -0.4 profits. 1.5 1.4 0.1 • On average, the absolute value of the regulatory CET 1 1.4 2.5 -1.1 capital declined by 2% in 2018. However, this average is HSBC 1.3 1.6 -0.3 influenced by the negative impact from Italian and Spanish Lloyds 1.3 1.7 -0.4 banks, while the capital of other peers shows or remained flat. 0.4 0.4 0.0 • Overall, poor capital generation was due to a broader issue of low profitability of the European banks with limited contribution from IFRS 9 related deductions. • This view is supported by a declining trend in non-regulatory This report has been created using capitalisation ratios (Total equity / Total assets) for the same the data of Moody’s Analytics set of banks during 2018. BankFocus. If you would like more information on how to replicate the research, or would like a free trial, email [email protected] bvdinfo.com 1 For the peer group list refer to “Research methodology and scope” on pg. 11

1 Moody’s Analytics BankFocus Research

Moody’s Analytics BankFocus Research 17 June 2019

Modest growth in Total assets The aim of this research is to analyse the impact of IFRS 9 accounting standards on European banks’ asset quality, provisioning and capitalisation ratios. European banks adopted IFRS 9 accounting standards on 1 January 2018 which requires earlier recognition of credit losses compared to the existing IAS 39 accounting standards.

Prior to the adoption of IFRS 9 standards market participants expected significant impact on CET 1 capital, higher provisioning expenses and broadly similar impaired loan ratios.

To test these hypotheses we selected a sample of 18 leading European banks with end-2018 annual financial statements prepared in accordance with IFRS 9 accounting guidelines. We compared these with similar metrics as per end-2017 financial statements prepared under IAS 39 standards.

As a starting point, we looked at asset growth rates during the last year. The growth rates of the European banks were broadly flat during 2018, with the same number of entities (nine banks) growing their assets compared to the ones contracting (nine banks). On average the annual growth of Total assets for the 18 European banks was very low, less than 1% during the last year.

These modest growth trends were in line with the cautions approach to lending and risk-taking which has prevailed following the financial crisis in European banking systems. The introduction of IFRS 9 standards on its own had no visible impact on a broad growth strategy of European banks. In our view, the general appetite of the European banks to grow their balance sheets remains limited, constrained by macroeconomic concerns and the ultra-low interest rate environment.

Exhibit 1: Total assets, YE 2018 vs. YE 2017 (€ billion)

HSBC BNP Credit Agricole Santander BPCE Lloyds UniCredit Intesa Sanpaolo BBVA Nordea Commerzbank Caixa ABN AMRO Handelsbanken KBC La Banque Postale Sabadell Bankia

€ billion 0 500 1000 1500 2000 2500

2018 2017

2 Moody’s Analytics BankFocus Research 17 June 2019

Risk profile of European banks has marginally worsened We also compared the annual growth rate of Risk-weighted assets (RWAs) for the same set of banks. Here, a larger majority of banks (11 entities) recorded modest growth in RWA compared to contraction in RWAs (seven banks). The average annual growth rate of RWAs for the 18 European banks was above 3% during 2018. This was higher than the flat growth rate of Total assets for the same period.

This comparison of RWA and Total asset growth rates suggests that the European banks asset risk has marginally increased during 2018. This, in our view, is due to a general strategy adopted by the European banks to compensate their low profitability by increasing the risk profile of their assets.

Exhibit 2: RWA, YE 2018 vs. YE 2017 (€ billion)

HSBC BNP Santander Credit Agricole BPCE UniCredit BBVA Intesa Sanpaolo Lloyds Commerzbank Nordea Caixa ABN AMRO KBC Bankia Sabadell La Banque Postale Handelsbanken

€ billion 0 200 400 600 800

2018 2017

Asset quality ratios of European banks have improved under IFRS 9 Despite the increase in RWAs and stagnating lending, the asset quality ratios of European banks have improved across the board in 2018.

This suggests that the stock of impaired loans, which is equivalent to Stage 32 loans under IFRS 9, has declined compared to the same category as per IAS 39 standards.

This trend has been helped by a benign economic environment in Europe as well as active workouts that the European banks pursued during the last year. In particular, the Italian banks Intesa and Unicredit were ahead of their peer in terms of positive year-on-year change in impaired loan ratios at 8.7% and 3%, respectively.

2 Stage 3 loans (problem loans): Impairment on these loans is recognised on the basis of lifetime expected credit losses

3 Moody’s Analytics BankFocus Research 17 June 2019

Exhibit 3: Impaired loans / Gross customer loans & advances, YE 2018 vs YE 2017 (%) Company Name Country 2018 2017 Change UniCredit Italy 8.1 11.1 -3.0 Bankia 6.3 8.8 -2.5 Caixa Spain 4.8 6.2 -1.4 Sabadell Spain 4.4 5.4 -1.0 KBC Belgium 4.4 6.3 -1.9 BNP France 4.3 5.0 -0.7 BBVA Spain 4.2 5.0 -0.8 Intesa Sanpaolo Italy 4.2 12.9 -8.7 Santander Spain 3.7 4.2 -0.5 BPCE France 3.2 3.5 -0.3 Credit Agricole France 2.6 3.1 -0.5 ABN AMRO Netherlands 2.2 2.5 -0.3 Nordea Finland 1.5 1.9 -0.4 La Banque Postale France 1.5 1.4 0.1 Commerzbank Germany 1.4 2.5 -1.1 HSBC United Kingdom 1.3 1.6 -0.3 Lloyds United Kingdom 1.3 1.7 -0.4 Handelsbanken Sweden 0.4 0.4 0.0

However, despite these benign trends a broader look at the asset quality of the European banks still paints a challenging picture.

If we include Stage 2 loans3 in the asset quality calculations, the majority of European banks’ extended asset quality ratios were at double digit levels as at end-2018. Under IFRS 9 Stage 2 loans are defined as performing but with a significant increase in credit risk since origination and may indicate higher propensity of borrowers to default.

Exhibit 4: Stage 2 & Stage 3 loans / Gross customer loans & advances, YE 2018 (%) Company Name Country 2018 Company Name Country 2018 UniCredit Italy 16.8 Credit Agricole France 10.2 KBC Belgium 15.7 Santander Spain 9.5 BNP France 15.4 HSBC United Kingdom 7.5 BPCE France 13.6 ABN AMRO Netherlands 6.9 Bankia Spain 13.4 Nordea Finland 6.2 BBVA Spain 12.1 Commerzbank Germany 5.6 Caixa Spain 12.1 La Banque Postale France 4.0 Sabadell Spain 10.5 Handelsbanken Sweden 3.0 United Kingdom 10.2 Lloyds

3 Impairment on Stage 2 loans (underperforming) is recognised on the basis of lifetime expected credit losses. This is a principal difference from IAS 39 provisioning approach of incurred but not reported events

4 Moody’s Analytics BankFocus Research 17 June 2019

Total provisioning coverage of impaired loans also improved In light of the lower impaired loan ratios, the total provisioning coverage has also improved as at end-2018. The average provisioning coverage ratio was 59% as at end-2018 compared to 52% end-2017, in line with the general improvement in the asset quality ratio. It’s worth noting that this provisioning coverage calculation includes total stock of provisioning against Stage 3 loans, which somewhat overstates the coverage ratio of impaired loans.

Exhibit 5: Loan loss reserves / Impaired loans, YE 2018 vs YE 2017 (%) Company Name Country 2018 2017 Change Credit Agricole France 84.5 78.8 5.7 BBVA Spain 75.0 65.8 9.2 BNP France 70.9 65.8 5.1 Santander Spain 69.7 66.0 3.7 UniCredit Italy 67.6 60.3 7.3 Commerzbank Germany 64.7 55.2 9.5 HSBC United Kingdom 64.6 48.4 16.2 BPCE France 58.9 51.4 7.5 Lloyds United Kingdom 54.9 28.1 26.8 Intesa Sanpaolo Italy 54.5 53.2 1.3 Bankia Spain 54.5 50.9 3.6 Caixa Spain 53.4 49.4 4.0 KBC Belgium 53.3 44.2 9.1 Sabadell Spain 53.1 47.4 5.7 La Banque Postale France 52.9 48.4 4.5 Handelsbanken Sweden 49.2 64.9 -15.7 Nordea Finland 43.6 38.4 5.2 ABN AMRO Netherlands 38.4 35.6 2.8

If we look at provisioning coverage which only includes Expected credit losses for Stage 3 loans as percentage of Customer loans classified as Stage 3, the average provisioning coverage ratio was lower at 45% as at end-2018 (Exhibit 6). This level of specific provisioning coverage is adequate by European standards, although not directly comparable with the provisioning coverage ratios as per end-2017 IAS 39 financials.

Unicredit (to some extent surprisingly) and the large French banks (CA and BNP Paribas) had the most conservative coverage ratios based on this metric, with Lloyds showing the lowest ratio as at end-2018. This is despite the fact that the impaired loan ratios of excludes a large sum of £15.4 billion Purchased or Originated Credit-Impaired loans from the calculation for consistency purposes.

5 Moody’s Analytics BankFocus Research 17 June 2019

Exhibit 6: Expected credit loss allowances on Stage 3 loans / Gross loans & advances Stage 3, (%) Company Name Country 2018 Company Name Country 2018 UniCredit Italy 60.9 Sabadell Spain 42.3 Credit Agricole France 60.6 Caixa Spain 39.9 BNP France 56.9 La Banque Postale France 39.3 BBVA Spain 47.6 HSBC United Kingdom 39.3 Commerzbank Germany 47.0 Handelsbanken Sweden 37.9 KBC Belgium 46.9 Nordea Finland 34.4 BPCE France 45.3 ABN AMRO Netherlands 31.6 Santander Spain 44.5 Lloyds United Kingdom 27.0 Spain 43.6 Bankia Total provisioning stock has declined under IFRS 9 Contrary to the original expectations, Loan loss reserves as percentage of Gross loans has declined under IFRS 9 accounting standards to 2.1% as at end-2018 from 2.4% as at end-2017. This is perhaps most surprising finding as the impact from switching to lifetime expected credit losses for Stage 2 loans was expected to generate higher requirement for provisioning against the unimpaired part of the loan portfolio.

This, in our view, is due to banks mostly absorbing IFRS 9 provisioning requirements through capital resources with little impact on the Income statement. In addition, the EU regulations allow to spread the impact from increased impairment over a period of five years for European banks. However, from the current reporting it was unclear which banks adopted phasing in the IFRS 9 impact.

Exhibit 7: Loan loss reserves / Gross customer loans & advances, YE 2018 vs YE 2017 (%) Company Name Country 2018 2017 Change Intesa Sanpaolo Italy 5.7 6.9 -1.2 UniCredit Italy 5.5 6.7 -1.2 Bankia Spain 3.4 4.5 -1.1 BBVA Spain 3.2 3.3 -0.1 BNP France 3.1 3.3 -0.2 Santander Spain 2.6 2.8 -0.2 Caixa Spain 2.6 3.1 -0.5 Sabadell Spain 2.4 2.6 -0.2 KBC Belgium 2.3 2.8 -0.5 Credit Agricole France 2.2 2.4 -0.2 BPCE France 1.9 1.8 0.1 Commerzbank Germany 0.9 1.4 -0.5 HSBC United Kingdom 0.9 0.8 0.1 ABN AMRO Netherlands 0.8 0.9 -0.1 La Banque Postale France 0.8 0.7 0.1 Lloyds United Kingdom 0.7 0.5 0.2 Nordea Finland 0.7 0.8 -0.1 Sweden 0.2 0.3 -0.1 Handelsbanken

6 Moody’s Analytics BankFocus Research 17 June 2019

Lower provisioning expenses in the Income statement In line with the improved asset quality Provisioning expenses as percentage of Operating profits declined in 2018. This had a positive impact on the net profitability of European banks, although insufficient to boost their capitalisation ratios.

A total of 14 out of the eighteen European banks lowered their provisioning expenses as percentage of Pre- impairment operating profit in 2018. Despite this improving trends, the Spanish and Italian banks had high ratios indicating that costs related to problem assets still remain a considerable part of their Operating profit (30%-40%).

In case of Sabadell, the very high ratio at 76% was amplified by the inclusion of provisions for other assets (including the losses at the level of its subsidiary TSB Bank plc).

Exhibit 7: Total net impairment charges / Pre-impairment operating profit, YE 2018 vs YE 2017 (%) Company Name Country 2018 2017 Change KBC Belgium -0.1 -2.0 1.9 Handelsbanken Sweden 3.8 7.4 -3.6 Nordea Finland 4.3 8.5 -4.2 Caixa Spain 8.3 47.3 -39.0 HSBC United Kingdom 9.3 11.2 -1.9 Lloyds United Kingdom 13.6 11.5 2.1 La Banque Postale France 14.7 18.0 -3.3 Credit Agricole France 15.1 15.5 -0.4 ABN AMRO Netherlands 17.7 -1.7 19.4 BPCE France 20.6 21.6 -1.0 BNP France 23.2 24.3 -1.1 Commerzbank Germany 28.3 92.4 -64.1 Bankia Spain 29.1 33.1 -4.0 Intesa Sanpaolo Italy 34.0 32.4 1.6 BBVA Spain 35.3 43.0 -7.7 UniCredit Italy 36.3 40.6 -4.3 Santander Spain 40.5 48.8 -8.3 Spain 76.1 87.9 -11.8 Sabadell

7 Moody’s Analytics BankFocus Research 17 June 2019

Declining CET 1 capital with Italian and Spanish banks impacted most Unlike the asset quality ratios, the capitalisation of the European banks came under pressure. On average the absolute value of the regulatory CET 1 capital of European banks declined by 2% in 2018. However, this average was influenced by the negative impact from Italian and Spanish banks. Excluding those banks4 would keep year-on-year CET 1 capital change flat for the remaining peer group.

The significant change in the CET 1 capital for the Spanish and Italian entities was due to higher degree of regulatory deductions from CET 1 in 2018 compared to the previous year. These deductions include IFRS 9 related adjustments which ranged from 2.3% (Bankia, Caixa) to c. 5.5% (Unicredit and Intesa) of respective shareholder equity. Commerzbank was also one of the entities whose capital declined partly due to the IFRS 9 related deductions (4% of equity).

At the same time, eight out of the 18 selected European banks showed positive growth in regulatory capitalisation despite the accounting changes. This suggests that IFRS 9 related impact on capital was manageable for almost half of the selected sample of European banks.

Exhibit 8: CET 1, year-end 2018 vs. year-end 2017 (€ billion)

HSBC Credit Agricole BNP Santander BPCE UniCredit BBVA Lloyds Intesa Sanpaolo Nordea Commerzbank ABN AMRO Caixa KBC Handelsbanken Bankia Sabadell La Banque Postale

€ billion 0 30 60 90 120

2018 2017

4 Sabadell, Caixa, Intesa and Unicredit

8 Moody’s Analytics BankFocus Research 17 June 2019

A similar trend in the capitalisation was also apparent at the level of CET 1 ratios for European banks. The CET 1 ratios of 11 out of 18 European banks declined in 2018. However, the regulatory IFRS 9 adjustments were one (but not principal) reasons for a general decline in capitalisation in 2018. The highest rates of CET 1 contraction (e.g. Handelsbanken and Nordea) were not driven by the IFRS 9 impact but by structural shifts in the balance sheets.

Exhibit 9: CET 1 ratio, YE 2018 vs YE 2017 (%) Company Name Country 2018 2017 Change ABN AMRO Netherlands 18.4 17.7 0.7 Handelsbanken Sweden 16.8 22.7 -5.9 KBC Belgium 16.0 16.3 -0.3 BPCE France 15.5 15.4 0.1 Nordea Finland 15.5 19.5 -4.0 Credit Agricole France 15.0 14.9 0.1 Lloyds United Kingdom 14.6 14.1 0.5 HSBC United Kingdom 14.0 14.5 -0.5 Bankia Spain 13.8 14.2 -0.4 Commerzbank Germany 12.9 14.1 -1.2 UniCredit Italy 12.1 13.6 -1.5 Intesa Sanpaolo Italy 12.0 14.0 -2.0 Sabadell Spain 12.0 12.8 -0.8 BNP France 11.8 11.8 0.0 La Banque Postale France 11.7 13.4 -1.7 Caixa Spain 11.5 11.7 -0.2 Santander Spain 11.3 10.8 0.5 Spain 11.3 11.1 0.2 BBVA

The assumption that the pressure on capitalisation was due to broader factors is evidenced by a corresponding decline in non-regulatory leverage ratios (Total equity / Total assets) for the same period. Nine out of the 18 banks reported contraction in their simple leverage ratios which was due to insufficient internal capital generation versus higher growth in RWAs.

In conclusion, the pressure on the capitalisation of European banks was more broadly due to low profitability and capital retention with IFRS 9 related impact as one of the components of this general trend in 2018.

Exhibit 10: Total equity / Total assets, YE 2018 vs YE 2017 (%) Company Name Country 2018 2017 Change Company Name Country 2018 2017 Change BBVA Spain 7.8 7.7 0.1 Caixa Spain 6.2 6.4 -0.2 HSBC ited Kingdo 7.6 7.9 -0.3 Credit Agricole France 6.1 6.1 0.0 Santander Spain 7.4 7.4 0.0 Nordea Finland 6.0 5.7 0.3 KBC Belgium 6.9 6.4 0.5 BPCE France 5.8 5.7 0.1 Intesa Sanpaolo Italy 6.9 7.1 -0.2 ABN AMRO Netherland 5.6 5.4 0.2 UniCredit Italy 6.8 7.2 -0.4 Sabadell Spain 5.5 6.0 -0.5 Bankia Spain 6.4 6.4 0.0 BNP France 5.2 5.5 -0.3 Commerzbank Germany 6.4 6.6 -0.2 Handelsbanken Sweden 4.8 5.1 -0.3 Lloyds ited Kingdo 6.3 6.1 0.2 La Banque Postale France 3.9 4.4 -0.5

9 Moody’s Analytics BankFocus Research 17 June 2019

Appendix I: Selected additional asset quality ratios of European banks

Unreserved impaired loans / Total equity, YE 2018 vs YE 2017 (%)

Company Name Country 2018 2017 Change HSBC United Kingdom 2.4 4.0 -1.6 Handelsbanken Sweden 2.8 2.0 0.8 Credit Agricole France 3.2 5.1 -1.9 Commerzbank Germany 3.9 8.3 -4.4 Lloyds United Kingdom 5.9 11.5 -5.6 La Banque Postale France 7.0 6.4 0.6 BBVA Spain 7.7 12.5 -4.8 Nordea Finland 8.0 11.2 -3.2 BNP France 9.3 12.0 -2.7 Santander Spain 9.5 11.6 -2.1 BPCE France 12.0 15.7 -3.7 KBC Belgium 15.8 27.3 -11.5 ABN AMRO Netherlands 17.0 20.9 -3.9 Caixa Spain 20.8 28.3 -7.5 UniCredit Italy 23.0 33.1 -10.1 Sabadell Spain 25.1 31.3 -6.2 Bankia Spain 26.7 40.7 -14.0 Intesa Sanpaolo Italy 29.1 43.5 -14.4

10 Moody’s Analytics BankFocus Research 17 June 2019

Research methodology and scope Using BankFocus search steps we analysed the following financial factors: Total assets, Gross loans & advances to banks (including stage 1 ,2, and 3 under IFRS 9), RWA, CET 1, Expected credit loss allowances on loans & advances to banks and customers (including stage 1 ,2, and 3 under IFRS 9), Impaired loans / Gross customer loans & advances, Impaired loans / Average risk-weighted assets (RWAs), Loan loss reserves / Impaired loans, Net impairment charges / Net interest income, Total net impairment charges / Pre-impairment operating profit, Unreserved impaired loans / Total equity, CET 1 ratios Loan loss reserves / Gross customer loans & advances, Total equity / Total assets for the period of 2017 and 2018.

We analyzed 18 European institutions which reported under IFRS 9 in 2018. We analysed the following sample of banks for this report:

Belgium: KBC Groep NV / KBC Groupe SA

Finland: Nordea Bank Abp

France: BNP Paribas SA, Credit Agricole, BPCE Group, La Banque Postale

Germany: Commerzbank AG

Italy: UniCredit SpA, Intesa Sanpaolo

Netherlands: ABN AMRO Group N.V.

Spain: SA, Banco Bilbao Vizcaya Argentaria SA, Caixabank, S.A., Banco de Sabadell SA, Bankia, SA

Sweden: Svenska Handelsbanken AB

UK: HSBC Holdings Plc, Lloyds Banking Group Plc

The exhibits in the report are based on Moody's Analytics BankFocus, unless otherwise stated.

Please get in touch if you have any analytical questions

Irakli Pipia Xian (Peter) Li Director – Senior Research Analyst Senior Research Analyst BankFocus Research BankFocus Research 44 20 7772 1690 1 212 553 1404 [email protected] [email protected]

11 Moody’s Analytics BankFocus Research 17 June 2019

If you subscribe to BankFocus and would like help on its more technical and analytical functionality, please contact your account manager.

If you’re not a subscriber and would like to arrange a trial, please email us at [email protected]

You might be interested in

Exploring the latest profitability trends of banks in the US, Europe and China

Watch the replay

Exploring funding and liquidity risk of banks in developing markets Watch the replay

Banks in the Eurozone are lagging behind their peers: a closer look at asset quality from three perspectives. Watch the replay

The Bureau van Dijk Podcast Visit the site

12 Moody’s Analytics BankFocus Research 17 June 2019

© 2019 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 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 OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. 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 AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

13