Risk Mgmt - Credit Risk Assessment

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Credit Report on

BayernLB

February 2009


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Table of Contents

Landesbank industry trends: .............................................................. 1

Profile of BayernLB .......................................................................... 1

Segmental performance......................................................................... 2

BayernLBs strategy: Restructuring plans in the light of the current difficult financialmarkets ............................................................................................ 2

Financial market turmoil and its effects on BayernLB ..................................... 3

SWOT analysis of BayernLB ..................................................................... 4

Financial Snapshot ............................................................................... 5

Financial assessment of BayernLB............................................................. 6

Effect of the ABS portfolio on BayernLBs balance sheet and income statement ..... 9

Appendix ......................................................................................14

SoFFin ............................................................................................. 14

Solidarity/cross-guarantee system ........................................................... 14

Peer Analysis..................................................................................... 15

Bibliography...................................................................................... 16


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Landesbank industry trends:

The German Landesbank sector at present, comprising of 7 Landesbanks, plays a significant role inthe German banking industry. They were established with an objective of providing clearing houseservices to the regional saving banks.

In terms of ownership, these Landesbanks are owned by the savings banks and savings banksassociation of the region to which they act as the principal bank. Due to this ownership structureand the function they perform, Landesbanks in general are systemic important for the Germanybanking sector and command a high probability of support from the owners as well as government.

They are covered under cross guarantee/solidarity mechanism (Refer Appendix for details).In addition to the clearing bank function, Landesbanks also provide wholesale banking services tocorporate clients of the saving banks of the region. Hence, they work in close association with thesaving banks for the banking business.

As an industry-wide feature, these Landesbanks are wholesale funded and mainly depend oncovered bonds issuance (Pfandbriefe) for their funding requirements, with little contribution fromcustomer deposits. Also, they heavily invest in structured and other securities to increase theirreturns. As a result, the risk profiles of Landesbanks are high as compared to the saving banks.

Due to large investments in risky assets, Landesbanks suffered severely due to credit market crisisstarted in 2007. All the Landesbanks recorded huge write-downs and credit related losses in theirportfolio, putting a pressure on their financial profile further. However, they were supported bythe capital infusion and bail out measures undertaken by their respective owners and the Germanfederal government.

As a side effect, the global financial crisis also created a favourable environment for consolidationof Landesbanks, as the profitability and capitalization of all banks have been adversely affected bymassive write-downs and revaluations on their securities portfolio.

Profile of BayernLB

BayernLB was formed in 1972 through the merger of Landesbodenkreditansalt and BayerischeGemeindebank. It is the second-largest Landesbank and ninth largest commercial bank in Germany,with an asset base of 426 billion as at 30 September 2008.

Headquartered in Munich, the bank mainly operates in the State of Bavaria and is into corporatelending; project finance; capital markets and real estate lending to corporates, SMEs, retailcustomers and municipal authorities. It is also a principal bank in the State of Bavaria and a part of Sparkassen-Finanzgruppe, which comprises 75 Bavarian savings banks. BayernLB works closely withthese savings banks, and is well-positioned in the region of Bavaria.

The Free State of Bavaria and the Association of Bavarian Savings Banks, each with a 50% stake,indirectly owns BayernLB (through BayernLB Holding AG). This ownership structure helps cover thebank under the guarantee scheme run by German Savings Bank Association as well as reserve fundset up by the Association of Bavarian Savings Banks. The bank is strongly supported by its


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Segmental performance

As at 3Q08 ( million) Total operating profit Profit before tax Return on equity

Corporates 330 328 22%

Real estate 135 134 24.8%

Financial markets -428 -445


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DKB, Berlin It has been BayernLBs wholly owned subsidiary since 1995. It operates throughoutGermany as a direct bank for retail customers, focusing on selected target groups in the publicsector and corporates segments, such as housing companies and agriculture enterprises.

HGAA, Klagenfurt BayernLB acquired a 57.31% stake in HGAA in 2007 to expand in south-easternEurope. HGAA operates through its two strategic segmentsbanking and leasing. In the bankingsegment, it offers traditional financing, savings and deposits, sophisticated investment products,asset management, payments, documentary business and structured finance.

MKB, Budapest It is one of Hungarys largest banks and is actively into corporate and retailbanking. It is also an integral component of BayernLBs business model and a link to the Hungarian,Bulgarian and Romanian markets. MKB has a market share of 13.4% in wholesale loan, 11.2% inwholesale deposits, 5.5% in retail loans, 6.2% in retail deposits and 3.7% in investment services.BayernLB holds 89.62% in MKB.

Financial market turmoil and its effects on BayernLB

In line with the industry, BayernLB has high investments in asset-backed securities (ABS). Incomefrom financial investments had been an important source of revenues; they contributed 48.2%(482 million) in 2006.

The global financial market turmoil and the US sub prime crisis in mid-2007 resulted in significantmark-to-market and impairment losses for Landesbanks. BayernLB, with an exposure of 33 billionin structured finance products (as at 2007 end), also suffered write-downs of 1.2 billion on itscredit investment portfolio in 2007, resulting in a decrease of over 91% in the groups net profit (y-o-y) in 2007.

The credit market crisis continued in 2008, accentuated by the collapse of Lehman Brothers inSeptember 2008 and the bankruptcy of Icelandic banks in November 2008. This significantlydropped the market value of structured finance products. BayernLB continued to record highsecurities losses, as it is exposed to Lehman and Icelandic banks, eventually weakening its

profitability and capitalisation levels. In first none months of 2008, the bank incurred mark-to-market losses on its trading securities portfolio of 1,017 million.

In order to sustain its business position and strengthen its capital position, the bank plans for:

Capital injection of 10 billion; 7 billion from the State and 3 billion from the Association of Bavarian Savings Banks.

Recapitalisation up to 5.4 billion (only 3 billion is approved by EU) under German FinancialMarkets Stabilisation Institution, Finanzmarktstabilisierungsanstalt (FMSA) support scheme;700 million will be contributed by the Bavaria State, 300 million by the Association of

Bavarian Savings Banks, and the remaining by German federal government.Protection plan for the ABS investment portfolio worth 4.8 billion, to be borne by the banksowners.

Guarantee under SoFFin, the German stabilisation fund, worth 15 billion for the issue of bonds.

BayernLB received EUs approval for the above recapitalisation plan (except that the FMSAsit li ti d f 3 billi t t l i t d f th d 5 4 billi ) i D b 2008


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nearly 33,000 employees. We believe that, this merger, if happens, will strengthen the banksposition and strategic importance in the German market.

Figure 1: CDS spreads

Source: Bloomberg

The CDS spreads of the group are traded at 105 basis points. The above chart shows the trend of CDSchart for past one year. In October 2008, the CDS for the group have shot up, due to Lehman brothersfilling of bankruptcy. In the beginning of December 2008 (when the group released 3Q financials) theCDS spreads have again sprung up, due to the losses incurred.

SWOT analysis of BayernLB

Strength Weakness

High likelihood of support from thegovernment due to its high systemicimportance

Very high likelihood of support from both theowners, as demonstrated by recent capitalinjections

Increasing diversification into retail bankingbusiness with specific customer segment focus

Growing its international presence in centraland eastern Europe through M&A

Well integration of subsidiaries and costcontainment

Huge write-downs and revaluations on itssecurities portfolio

Modest risk management systems .High risk securities portfolio continues topressurise the banks financial profile,managing which would be a challenge.


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BayernLBs credit profile on a standalone basis is much weaker. The financial metrics has weakeneddue to the heavy losses made on the securities portfolio. The securities portfolio is consistentlyweakening due to its risky investments portfolio.

In addition, the global financial crisis and difficult operating environment has further rattled thegroups credit profile. The effect of credit market turmoil is expected to be seen in the groupfinancials even in 2009, as BayernLB may book high losses from securities portfolio. Though themanagement has taken various business restructuring initiatives, their positive effect is expected onlyin the medium term.

Financial Snapshot

BayernLB(EUR mn) 9M08 1H08 2007 2006

Total assets 426,202 415,641 415,639 344,369

Deposits 99,250 95,943 92,617 76,704

Gross loans 195,195 186,168 175,567 137,097

Equity 9,960 11,546 12,893 12,559

Securitised liabilities 122,244 121,598 122,895 107,142

Trading assets 76,957 78,871 84,812 59,622

Investment assets 62,280 63,177 67,827 67,438

Liquid assets 151,739 151,161 157,330 130,228

Loan-loss reserves 2,475 2,351 2,307 2,151

Operating income -1,740 -630 255 1,332

Net income -1,740 -731 175 989

LLP 333 179 115 182

Net fee-based income 452 287 380 404

Net interest income 1,949 1,288 2,170 1,820

ROAA -0.55% -0.35% 0.05% 0.29%

ROAE -21.58% -13.10% 1.38% 7.88%

NIM 0.64% 0.65% 0.59% 0.54%

Cost/income NA 77.52 75.46 61.13

Cost/average assets 0.42% 0.27% 0.46% 0.43%

NPL/gross loans NA 2.65 5.14 3.91


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Liquid assets/total assets 35.60% 36.37% 37.85% 37.82%

Deposits/loans 50.85% 51.54% 52.75% 55.95%

The group has adopted IFRS reporting structuring since 2007.

*NPL= Default on credit exposure (in absence of disclosure)NIM= Net interest income/ average earning assets.Cost/income= operating expenses/operating incomeLiquid assets= cash and balance central bank+ interbank assets+ trading assets (excluding derivatives)

Financial assessment of BayernLB

Please note that 3Q08 and 3Q07 financials are not comparable, as the effect of consolidation withHGAA is not reflected in 3Q07 results. The groups 3Q08 financials are not as per IFRS. So we havebased our analysis on 1H08 results, except in the case of critical time-sensitive information where 3Q08financials are used to show correct trend.

Credit risk position : The groups credit risk position is weakening on account of losses incurred in itssecurities portfolio (especially ABS). We expect the asset quality to weaken further, as the group has asizeable securities portfolio (with high investments in structured products), which will be affectedduring the ongoing financial turmoil.

BayernLBs core business is wholesale lending, with gross loan portfolio accounting for 45.8% of totalassets at 3Q08. However, the bank has diversified business, with high investments in risky structuredfinance products leading to significant credit quality deterioration. At 3Q08, trading and investmentsportfolios contributed 18.1% and 14.6%, respectively, to total assets.

Figure 2: Asset classification

1%

1%1%

18%

1%

1%

45%

17%1%0%

14%

0%

Cash reserve

Loans and advances to banks

Loans and advances to cus tomers

Risk provisions

Assets held for trading

Positive fair values from derivative financial instruments

Investment assets

Investment propertyProperty, plant and equipment

Intangible assets

Income tax assets

Other assets


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2.65% in 1H08 from 5.14% (FYE07), mainly due to write-offs. Historically, the bank has had low loan-loss coverage similar to its peers, and continued the trend with the coverage ratio of only 48% in 1H08.

Figure 3: Loan loss coverage Figure 4: Impaired loans ratio

47.73%

25.57%

40.10%

0%

10%

20%

30%

40%

50%

60%

1H08 2007 2006

%

LLR/NPL

2.65%

5.14%

3.91%

0%

1%

2%

3%

4%

5%

6%

1H08 2007 2006

%

NPL/Gros

Source: Interim results of 1H08

At 1H08, BayernLBs total credit exposure (on-balance sheet and off-balance sheet) was marginallyreduced by 3.0% to 469 billion, mainly on account of restrictive business policies and internationalcurrency rate fluctuations. The group has major credit exposures to financial institution/banks (36%)and real estate (20%). Geographically, nearly half of the groups credit exposure is from Germany (44%),followed by other European countries (34%), North America, Asia and Middle East. We view this as afairly well-diversified credit exposure, but not enough to mitigate the perils of the current globalfinancial crisis.

The groups trading portfolio is largely exposed to money market instruments at 60%, while bonds andother fixed interest securities formed 17% at 1H08; however, its equity exposure is very low.

BayernLB has used accounting flexibility to reclassify certain securities from trading assets and AFSassets into Loans and Receivables (LAR). In accordance with the International Accounting StandardsBoard (IASB) publication titled Reclassification of Financial Assets, concerning amendments to IAS 39and IFRS 7, the group has reclassified the securities reported in the balance sheet under investmentassets from AFS to LAR. The group intends to hold these securities, which were reclassifiedretroactively, with effect from 1 July 2008, for the foreseeable future. The fair value of thesereclassified securities represents the new carrying amount at the time of the reclassificationi.e. 39billion at 30 September 2008. This reclassification resulted in a 1.2 billion positive effect on therevaluation reserves, but was partly offset by a 65 million expense for portfolio provisions at the endof 3Q08.The group has investments in securitised assets and it also structures securitisation transactions forcustomers through its special-purpose entities. As at 1H08, BayernLBs ABS portfolio was around 21billion, which formed a high 2.12x of total equity. The core banking operations accounted for about95% of the ABS portfolio, and rest relates to its subsidiaries (HGAA, Landesbank Saar and Banque LBLux).Structuring ABS securitisation transactions for BayernLBs customers amounted to about 6.5 billion,


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Effect of the ABS portfolio on BayernLBs balance sheet and income statement

EUR mn Recognised through profit or loss Not recognised through profit or loss

Asset category 30-Jun -08 31-Dec-07 30-Jun -08 31-Dec-07

Commercial ABS -1.0 -7.5 -31.2 -7.2

Consumer ABS -1.5 -3.9 -21.8 -21.2

CDO -414.6 473.8 -50.9 -41.6

CMBS -27.9 -5.9 -123.1 -63

Non-prime RMBS -754.1 579.6 -618.5 -634.9

Prime RMBS -107.2 -42.6 -254.8 -188.1

Total -1,306.30 -1,113.30 -1,100.30 -956

Source: Financial stability report released on 30 June 2008

As at May 2008, BayernLB had direct and indirect exposures to US monoliners, with a total nominalvolume of 4.8 billion. Out of the total exposure the indirect exposure to monoline insurer was 4.6billion, of which nearly 2.9 billion was in the form of liquidity facilities committed to US municipalbonds guaranteed by the insurer.

Overall, the groups risk management systems are at moderate levels. Given the recent acquisition of HGAA, there is a need to develop more robust risk management systems. BayernLB has a high marketrisk, as it is more exposed to structured finance investments in the current global market meltdown.The group uses VaR methodology to measure its market risk. During 1H08, its average market price risk(VaR based on a 1-day holding period and 99% confidence level) on trading and bank books was 299.8million (113.1 million in FYE07). The sharp rise in overall risk, since the start of the year, is chieflydue to the continuing credit crunch. Price volatility on the ABS and bond markets has also risensignificantly, in tandem with widening spreads.

When converted to 10-day holding period VaR on the trading and banking book accounts to 948 million(357.8 million in FY07), which forms 8% of the groups equity. The stressed VaR (max VaR * 8(391.7*8)) of 3,133.6 million would account for 27% of equity, which is on the higher end.

We do not expect any substantial improvement in the banks credit risk position in the short term. Butthe credit quality can deteriorate further and affect the banks investment portfolio, if the creditmarket turmoil continues.

Earnings: Bayern LB has historically maintained low profitability (due to the nature of business). Withthe outbreak of credit crisis profitability has suffered badly, resulting from the write offs on itsinvestments portfolio. In the near term the probability of earnings recovery is very low.

Lik t f th G L d b k B LB h ff d f th fi i l k t l tilit Th


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crisis also weighed heavily on the results from financial investments (AFS), which registered write-offsof 1,178 million (252 million in 9M07).

BayernLB has maintained its core banking income, in spite of volatile markets. It has a concentratedrevenue base, with high dependence on interest income and a moderate contribution of fee andcommission income. The banks NIM remained almost flat at 0.65% in the last few years. Both in 3Q08and 1H08, BayernLBs pre-provisioning operating profits have increased as a result of the HGAAacquisition. Net fee and commission income nearly doubled to 452 million during first 9M08, from285 million a year ago, mainly due to the HGAA acquisition and financial consolidations.

Figure 7: Net interest margin

0.64% 0.65%

0.59%

0.54%

0.50%

0.55%

0.60%

0.65%

0.70%

9M08 1H08 2007 2006

( % )

NIM

Source: Interim reports of 3Q08 and 1H08. Annual report 2007

In line with most of its peers, BayernLB has a history of consistently lower profitability. The groupsperformance in the past 15 months has been hampered due to the financial market turmoil. Returnsmetrics have turned unfavourable for the group, and its ROAA and ROAE in 3Q08 have declined to -0.55% and -21.58% respectively (0.05% and 1.38% as at FYE07). The group would have shown improvedperformance, if there had been no large write-offs in the securities portfolio.

Figure 8: Returns metrics

0.05 0.29

-13.1

1.38

7.88

-0.35

-0.55

-15

-10-5

0

5

10

9M08 1H08 2007 2006

%

ROAA ROAE


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realignment of Financial Markets Business Area and downstream. Hence, we infer that the weakeningof cost-to-average-assets ratio is due to the one-off event and should not be considered as negative.

The group is focusing on the restructuring programme, especially in HGAA, to improve its operatingefficiency in the future. BayernLB plans to improve its cost structure by better integrating itssubsidiaries and achieving synergies, thereby reducing administration expenses by 670 million in 2013.It has also planned to cut headcount by around 5,600 from the current 19,200 over a five-year period.

BayernLB has a history of severe credit quality problems in its lending books that intensified in 20012002, as provisioning requirements increased significantly up to 95% of the net interest income,resulting in significant losses. In 1H08, the provisions/net interest income was just 17%, which is on thehigher end when compared with its German peers.

BayernLB has a history of severe credit quality problems in its lending books that intensified in 20012002, as provisioning requirements increased significantly up to 95% of the net interest income,resulting in significant losses. In 1H08, the provisions/net interest income was just 17%, which is on thehigher end when compared with its German peers.

The group is expected to book losses even in 1Q09, given the extremely volatile global financial marketconditions and deteriorating operating environment in Germany. The management has announced aseries of restructuring initiatives, to sustain business position and contain costs. However, we expect tosee the positive results of these initiatives in the medium to long term.

Funding and Liquidity: BayernLB, like most of its German peers, is largely wholesale funded.

Securitised liabilities (Pfandbriefe and other debts) contributed 29% of the total liabilities (excludingequity) as at 3Q08, marginally declining from 31% (FYE07). Interbank funding and deposits contributed24% each while trading liabilities, subordinated capital and other liabilities formed 16%, 3% and 4% of total liabilities, respectively.

As at 3Q08, the bank did not disclose its refinancing position. In FY07 (pre-crisis affected period), thegroup had a much lower need for refinancing loans. Overnight and time deposits at BayernLB averagedmore than 8 billion over the year. To a large extent, BayernLB depends on Pfandbriefe issuances for

refinancing. In the current market situation, the refinancing costs have increased, pressurising thegroups margins.

Figure 9: Funding mix

1%1% 3%

24%16%

1%

1% Liabilities to banks

Liabilities to customers

Securitised liabilities

Liabilities held for trading

Negative fair values from derivative financial instruments

Provisions

Income tax liabilities


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BayernLB did not release detailed disclosures related to liquidity along with 3Q08 results. It maintaineda stable liquidity ratio of 1.251.35% in 1H08, as against a regulatory requirement of 1%. However, thegroup increased its core banking business, with raising loan leverage and declining liquidity.The group has a good liquidity position, driven by large portion of liquid bond portfolio and substantialinterbank funding. BayernLB has maintained huge portfolio of liquid securities after July 2005 to insureagainst the effect of the removal of state guarantees from its liabilities (which backfired, as thesewere invested in ABS).

As at 1H08, the bank maintained a positive liquidity gap in the short-term bucket. However, there is aliquidity shortfall of about 20 billion up to five years.

As disclosed in the annual report, as at FYE07, the group had 41% of its securitised liabilities maturingin the one to five years. However, there is no maturity disclosure in the interim reports. We believethat the group may refinance these liabilities, considering the strong support received by the owners.However, refinancing costs are expected to be higher.

Going ahead, looking at the groups business profile, we expect its liquidity profile to remain stable.Nevertheless, funding problems may arise if huge write-offs on securities portfolio continue, despite of liquidity support from the government, owners and SoFFin.

Capitalisation: BayernLBs capitalisation is weakening due to reserve write-offs. In the medium term,this depends on the capital injections made by the owners and internal capital generation capacity.

Capitalisation problems sprang up due to losses incurred in its securities portfolio that in turn, affectedthe equity (depletion of reserves). As at 3Q08, the groups equity base slumped to 9.9 billion from11.5 billion in 1H08 due to 1.7 billion write-down in revaluation reserve. However, this was partiallyoffset by the positive effect of reclassification of securities from recent IFRS amendments.

Figure 10: BayernLB's capitalisation

7.0%8.0%

7.0%8.0%

11.0% 11.0% 11.0% 11.0%

0%

2%

4%

6%

8%

10%

12%

9M08 1H08 2007 2006

Tier 1 Total Capital

As at 3Q08, the groups total and core capital ratios declined to 10.5% and 6.8%, respectively,indicating the need for a capital infusion. BayernLBs capitalisation has been distressed for over a year.Earlier in June 2008, State of Bavaria offered a risk shield to the group in a bid to cover the losses


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possibility of external capital infusion (by any other third party) is very low, considering the bad phasethe group is undergoing.

BayernLBs has weak solvency position as reflected by net NPL/equity ratio of 47% at H108. Any furtherincrease in unprovided NPL will in turn affect the capitalization, this is highly likely as reserve coverageis very low and seems to be inadequate.

Capitalisation for BayernLB is expected to weaken further, as we do not expect any majorimprovement in the groups performance in 4Q08 and even in 2009. We could witness further depletionin the AFS reserves. This could be partially mitigated, if the owners inject adequate capital. In thelonger term, however, capital levels need to be restored from internal business sources; this could be along and arduous process.


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Appendix

SoFFin

The German government has established a Financial Markets Stabilisation Fund (SoFFin) for 480 billionunder the Financial Markets Stabilisation Act to stabilise its financial markets. The fund aims to easethe current liquidity crunch and also support the capital base of financial firms incorporated inGermany. SoFFin plans to do this through three tools:

Federal government guarantee for refinancing up to 400 billion, applicable on new debtinstruments issued on or before 1 December 2009 with maturity of less than 36 months

Recapitalisation of financial institutions

Option to acquire problematic assets

Solidarity/cross-guarantee system

BayernLB is a member of the Landesbank guarantee fund and hence a part of the guarantee scheme runby the Sparkassen-Finanzgruppe under the German Savings Bank Association. This fund aims to providecoverage and protection to the member banks by providing guarantee to their liquidity and solvency.This protection is not limited to any specific maximum amount.

The guarantee scheme comprises Landesbank guarantee fund, 11 regional Sparkassensttzungsfonds(savings bank guarantee funds) and guarantee fund of the state building societies (central buildingsocieties). All these form a cross-guarantee system, so that they are readily available to one another asextra coverage, if needed.

Apart from the guarantee fund, the Association of Bavarian Savings Banks has shared a reserve fund of 1 billion with BayernLB since July 2005, to provide a backup for the member savings banks orBayernLB in the event of any emergency. This reserve fund is operated independently of the cross-guarantee system and ensures both institutional and credit protection. This indicates solidaritybetween the Association and BayernLB.


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BayernLB 16

BayerischeLandesbank

Landesbank Baden-Wurttemberg

Landesbank BerlinAG

Landesbank Hessen-Thueringen

Girozentrale -

HELABA

NorddeutscheLandesbankGirozentrale

NORD/LB

HSH Nordbank AG WestLB AG Peer MediansEUR million

1H08 2007 1H08 2007 1H08 2007 1H08 2007 1H08 2007 1H08 2007 1H08 2007 H108 2007

Profitability ratios

Net interest margins 0.7% 0.6% 0.5% 0.5% 0.8% 0.6% 0.6% 0.6% 0.6% 0.8% 0.8% 0.8% 0.4% 0.4% 0.6% 0.6%

ROAA -0.4% 0.5% -0.6% 0.7% 1.6% 0.8% 0.9% 2.1% 1.3% 1.5% 1.2% 1.4% 4.2% -5.6% 1.2% 0.8%

ROAE -13.1% 1.4% -3.3% 3.0% 23.0% 7.5% 3.2% 7.4% 5.4% 5.2% 5.5% 6.2% 21.8% -28.6% 5.4% 5.2%

Cost/income 77.5% 85.0% 99.7% 78.7% 76.6% 82.5% 77.6% 64.7% 77.5% 74.9% 70.8% 74.7% 44.1% NA 77.5% 76.8%

LLP/net interest income 17.9% 0.0% -0.2% 9.4% 3.4% -6.6% 2.5% 5.0% 11.5% 3.7% 15.9% 0.8% 36.4% 23.7% 11.5% 3.7%

Asset Quality

NPL/gross loan 2.7% 6.3% 2.7% 2.7% NA 9.9% NA NA 10.7% 1.2% 2.0% 2.1% NA NA 2.7% 2.7%

Loan-loss reserves/ impairedloans 47.7% 20.8% 45.8% 48.9% NA 30.2% NA NA 56.2% 56.9% 67.7% 68.9% NA NA 52.0% 48.9%

Liquidity

Gross loans tocustomers/deposits fromcustomers

194.0% 189.6% 138.3% 151.8% 157.0% 159.1% 219.1% 211.3% 317.8% 266.3% 200.9% 209.9% 361.9% 327.1% 200.9% 209.9%

Liquid asset/total assets 36.5% 34.1% 45.7% 44.3% 26.2% 26.5% 38.3% 39.6% 26.4% 29.2% 22.4% 26.4% 30.3% 37.4% 30.3% 34.1%

Interbank ratio 71.6% 73.1% 87.5% 91.2% 52.2% 52.3% 53.7% 49.6% 82.4% 78.6% 45.8% 49.4% 66.5% 41.9% 66.5% 52.3%

Capital ratios

Tier I ratio 8.0% 7.0% 7.3% 6.5% NA 7.2% 8.1% 6.5% 7.9% 7.0% 6.5% 6.2% 5.6% 5.6% 7.6% 6.5%

Total capital ratio 11.0% 11.0% 11.1% 9.7% NA 10.8% 14.1% 11.4% 9.6% 9.5% 10.3% 10.4% 10.4% 8.6% 10.7% 10.4%

Total equity/assets 2.8% 3.1% 1.7% 2.4% 0.7% 1.2% 2.8% 2.8% 2.5% 3.1% 2.1% 2.3% 1.9% 1.6% 2.1% 2.4%

Liquid assets: Cash and central bank balance + interbank and trading assets excluding derivatives and financial assets through P&L

Bibliography

1) Bloomberg for CDS charts and write-downs, credit losses details.

2) Latest updates from Reuters, Financial Times and WSJ.

3) Annual reports, interim reports, financial sustainability report and press releases by Bayern LB.

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