Ulster Bank Ireland DAC

FINANCIAL INSTITUTIONS CREDIT OPINION 6 July 2016 Ulster Bank Ireland DAC Balanced funding profile and solid capitalization support recovery Update...
Author: Annice Jenkins
24 downloads 0 Views 2MB Size
FINANCIAL INSTITUTIONS

CREDIT OPINION 6 July 2016

Ulster Bank Ireland DAC Balanced funding profile and solid capitalization support recovery

Update

Summary Rating Rationale

RATINGS Ulster Bank Ireland DAC Domicile

Dublin, Ireland

Long Term Rating

Baa3

Type

LT Bank Deposits - Fgn Curr

Outlook

Stable

Please see the ratings section at the end of this report for more information.The ratings and outlook shown reflect information as of the publication date.

Contacts Dany Castiglione 44-20-7772-1070 Vice President [email protected] Carlos Suarez Duarte 44-20-7772-1061 VP-Senior Analyst [email protected] Laurie Mayers 44-20-7772-5582 Associate Managing Director [email protected] Maija Sankauskaite 44-20-7772-1092 Associate Analyst [email protected] Nick Hill Managing Director Banking [email protected]

33-1-5330-1029

We rate Ulster Bank Ireland DAC (UBID)’s deposits at Baa3/Prime-3. The bank’s issuer ratings are Ba1/NP. These ratings are underpinned by: (1) the bank’s b2 baseline credit assessment (BCA); (2) a very high probability of affiliate support coming from UBID’s parent, The Royal Bank of Scotland plc (RBS, A3/A3 positive, ba1), resulting in four notches of uplift from the BCA to arrive at the adjusted BCA of ba1; and (3) the results of our Advanced Loss Given Failure (LGF) analysis, which leads to a baa3 Preliminary Rating Assessment (PRA) for deposits and a ba1 PRA for senior unsecured debt. We also assign a Counterparty Risk Assessment (CR Assessment) of Baa1(cr)/Prime-2(cr) to UBID. The bank’s BCA of b2 incorporates: (1) rapidly reducing stock of problem loans, albeit still high compared to peers; (2) solid capital levels, which are expected to decline over the outlook period due to planned dividends, but to remain adequate to the bank’s risk profile; (3) weak, but improving quality of earnings and pre-provision profitability; and (4) balanced funding profile and comfortable liquidity positions. The adjusted BCA of ba1 incorporates a very high likelihood of support coming from UBID's parent. The very high level of affiliate support reflects our view that UBID remains an integral part of RBS' current strategy. UBID is directly owned by Ulster Bank Limited (UBL - A3 positive, b1), an entity incorporated in Northern Ireland. UBL is, in turn, owned by RBS. As UBL is UK-based and is part of the same resolution perimeter of its parent company, its LGF analysis is done at RBS' consolidated level by applying the waterfall notching coming from RBS' liability structure to UBL's adjusted BCA of ba1.

Credit Strengths »

Strong capital ratios, which we expect to decline but to remain adequate to the bank’s risk profile;

»

Solid funding profile, primarily made of retail and corporate deposits;

»

Comfortable liquidity position, supported by a portfolio of high-quality liquid assets; and

»

Very high level of affiliate support from RBS.

FINANCIAL INSTITUTIONS

MOODY'S INVESTORS SERVICE

Credit Challenges »

Large stock of problem loans which, albeit rapidly declining, still presents downside risks; and

»

Weak pre-provision profitability, although expected to improve over the outlook period.

Rating Outlook The stable outlook on all ratings incorporates our expectation that the favourable operating environment in Ireland will allow UBID to continue strengthening its credit fundamentals.

Factors that Could Lead to an Upgrade UBID’s BCA could be upgraded if the bank continues to strengthen its credit fundamentals and to reduce the amount of legacy and non-performing assets on its balance sheet and improve its pre-provision profitability. An upgrade of the parent's BCA, resulting in a positive change in UBID's adjusted BCA, would also positively affect all ratings. UBID's deposit and issuer ratings could also be upgraded if the bank were to issue significant amounts of senior and/or subordinated long-term debt.

Factors that Could Lead to a Downgrade UBID’s BCA could be downgraded because of a decline in its capital levels beyond what is already factored in our assessment, a strong increase in the use of market funding and a deterioration in the liquidity position. A downgrade of RBS standalone rating with implications for UBID's affiliate support assumptions would result in downgrades to all UBID's instrument ratings.

Key Indicators Exhibit 1

Ulster Bank Ireland DAC (Consolidated Financials) [1] Total Assets (EUR million) Total Assets (USD million) Tangible Common Equity (EUR million) Tangible Common Equity (USD million) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross loans / Due to customers (%)

12-152

12-142

12-133

12-123

12-113

Avg.

31019.0 33695.8 7834.0 8510.0 23.9 28.5 53.9 1.2 0.6 3.5 72.9 12.3 21.7 149.9

33841.0 40949.4 6527.0 7898.0 43.5 20.2 89.9 1.1 1.0 6.9 62.1 17.9 19.0 193.0

35375.0 48744.7 4611.0 6353.7 44.6 11.9 100.0 1.1 0.5 -12.8 74.2 28.1 16.3 224.2

40879.0 53894.5 7933.0 10458.8 40.4 17.5 99.3 1.2 0.7 -5.8 65.1 28.2 10.5 230.6

44625.0 57929.7 7173.7 9312.6 34.2 16.2 103.0 1.3 1.4 -6.2 47.0 40.7 8.3 265.2

-8.74 -12.74 2.24 -2.24 37.35 24.36 89.25 1.25 0.86 -2.95 64.35 25.45 15.25 212.65

[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [3] Basel II; IFRS [4] Compound Annual Growth Rate based on IFRS reporting periods [5] IFRS reporting periods have been used for average calculation [6] Basel III - fully-loaded or transitional phase-in & IFRS reporting periods have been used for average calculation Source: Moody's Financial Metrics

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

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

MOODY'S INVESTORS SERVICE

FINANCIAL INSTITUTIONS

Detailed Rating Considerations The financial data in the following sections are sourced from the UBID's consolidated financial statements unless otherwise stated. Although rapidly decreasing, the stock of problem loans remains high and may pose some downside risks UBID’s stock of problem loans remains high and will weigh down its standalone assessment for the next two to three years, as indicated by our caa3 macro adjusted score. Positively, this stock is rapidly decreasing and is adequately provisioned. Moreover, UBID’s loan portfolio went through different and severe stress tests, all passed successfully, and the risks it contains are relatively clear. This clarity, combined with an improving operating environment and the plan of RBS to further reduce the legacy portfolios, gives us confidence in expecting that future credit losses, if any, will be manageable for the bank. While UBID has been one of the most severely hit institutions by the recent crisis, its efforts in restoring its balance sheet have been probably the most drastic in terms of loan deleveraging (gross loans went down by 46% since 2010). In 2013 UBID’s parent company established the “RBS Capital Resolution Ireland” (RCRI) to manage an accelerated reduction in the Group’s non-performing capital intensive assets. A portfolio of €4.6bn of net assets was identified to be managed by RCRI, which has been almost entirely run down, as reported in Exhibit 2. Exhibit 2

The accelerated sale of legacy assets... RCRI progress - 2013 - Q12016; € billion

Source: Company's presentation

The effects of these measures are visible in the bank’s credit fundamentals. Impaired loans reduced to €6.5bn at end-2015, about 61% less from end-2014 stock value. The reduction in impaired loans was primarily driven by the sale of NPL portfolios, while the pace of migration to newly impaired loans declined as well, as economic conditions improved (Exhibit 3 and 4).

3

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

FINANCIAL INSTITUTIONS

MOODY'S INVESTORS SERVICE

Exhibit 3

Exhibit 4

...dramatically reduced the amount of problem loans held onbalance sheet…

...but coverage remained strong 2010 - 2015; € billion

2010 - 2015; € billion

Source: Moody's Banking Financial Metrics

Source: Moody's Banking Financial Metrics

We expect the bank to continue to reduce the stock of legacy and non-performing assets. This, coupled with strong coverage, should reduce the downside risks associated with these exposures. However, as long as these assets remain on balance sheet, any potential deterioration in the residential or commercial lending market in Ireland (rated A3 positive) would pose negative pressure on the bank's capital ratios as this would limit its ability to sell assets in a capital-accretive way. Strong capital ratios which, although expected to decline, will remain adequate to the bank’s risk profile Owing to the capital injections from RBS and strong profitability in 2014 and 2015, UBID now benefits from solid capital levels, which are the highest amongst peers. We have assessed UBID's capital score at baa3 from the macro-adjusted score of a1. We have made a 5-notch downward adjustment to this factor because of the continuous capital support received by UBID from RBS over the past years and to take into account the intention of the bank to recommence dividends in 2016 (subject to regulatory approval). Since the inception of the crisis UBID received capital injections of €15.7bn, which offset €13.8bn cumulative losses in the period 2009-2013. The large amount of equity received and the rapid deleveraging allowed the bank to maintain adequate regulatory ratios over the crisis and to increase its leverage ratio in a consistent and rapid way (Exhibit 5 and 6). Given the substantial support provided in the past, we assume RBS will continue to support the bank's compliance with minimum regulatory capital and liquidity requirements. This assumption drives the high level of affiliate support uplift in UBID's ratings.

4

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

FINANCIAL INSTITUTIONS

MOODY'S INVESTORS SERVICE

Exhibit 5

Exhibit 6

RBS' capital injections in UBID were material...

… but allowed the bank to increase its solvency metrics

UBID's loss for shareholders vs RBS capital injections; 2008 - 2015; € billion

Tangible Common Equity (TCE)/Risk weighted assets; Nominal leverage ratio calculated as TCE/ Tangible Banking Assets;

Source: UBID's annual reports

Source: Moody's Banking Financial Metrics

Given the progress in deleveraging and de-risking of the bank, the strong profitability over the past two years and the fact that no capital was repatriated so far, we expect that UBID will start to repatriate some capital to its parent over the outlook period, this being factored in our assessment. The capital repatriation is subject to the approval of the joint supervisory team of the European Central Bank (ECB) and Central Bank of Ireland (CBI) who have, as with all banks, set out minimum capital guidance and conditions for dividend payments. However we expect that UBID will maintain a level of capitalization adequate to its risk profile. Pre-provision profitability is weak, but we expect it to improve over the outlook period UBID’s return to profitability is the combined result of two sets of drivers. The first one reflects the efforts of the bank to restore its business model, improved economic environment and good implementation of its restructuring plan. The second one is the deleveraging undertaken by the bank and the impact of large write backs of provisions. As shown in Exhibit 7 and 8, UBID’s profitability in 2014 and 2015 was primarily driven by write-back of loan loss provisions. While, cumulatively, the write-backs were substantial, they should be compared with the provisions of the previous years, which were based on very conservative assumptions.

5

Exhibit 7

Exhibit 8

Profitability was driven by write-backs, which, although material...

...should be compared with past loan loss provisions

Net Income/Tangible Assets (NI/TA); Pre-provision Income/Tangible Assets (PPI/TA); Cost/Income ratio (C/I)

Cost of risk in bps; Loan loss provisions on Profit before Tax;

Source: Moody's Banking Financial Metrics

Source: Moody's Banking Financial Metrics

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

FINANCIAL INSTITUTIONS

MOODY'S INVESTORS SERVICE

In 2015, the bank’s pre-provision profitability was affected by several elements. Net interest income declined by 7.3% year-on-year (yoy), primarily driven by the deleveraging, the effect of the ECB's interest-rate cuts – which had an immediate effect on the €12.5bn tracker mortgage portfolio -, and the significant amount of low-yielding liquid assets held on balance sheet. These factors were only partly offset by lower cost of funding and new lending (€2.2bn). Net interest margin slightly improved to 1.2% from 1.1% of 2014. While commission income remained stable, trading income strongly declined over the year (-47% yoy). Albeit the cost-to-income ratio remains high, operating expenses declined in 2015 (-2% yoy) and we expect them to decline further over the next couple of years. As the economy continues to perform strongly in Ireland, we anticipate that UBID will benefit from additional write backs in 2016, even though this should be in a much smaller amount compared to the previous year. We do not consider the reversal in loan impairment charges a sustainable profitability driver and anticipate the bank's profitability to retreat to more modest levels over the outlook period. However, we do expect some improvement in pre-provision income levels, this being reflected in our assigned score of b3 for the profitability factor. Funding profile is no longer reliant on RBS and liquidity position is comfortable The drastic loan deleveraging, combined with an increased focus on long term funding, has materially reduced UBID’s funding gap and its reliance on parent funding, bringing its funding profile more in line with Irish peers (Exhibit 9). We consider UBID’s funding profile a positive rating driver, as indicated by the baa3 assigned score for the funding structure's factor. RBS’ intra-group funding was fully repaid in 2015 and the bank had a net stable funding ratio of 110% at end-2015. Exhibit 9

Exhibit 10

Funding profile is more balanced and in line with peers...

… and funding gap is rapidly narrowing

end-2015 data

Loan-to-deposit ratio (LTD): gross loans vs net loans

Source: Company's presentation

Source: Moody's Banking Financial Metrics

The loan-to-deposit ratio is still moderately high (Exhibit 10), but we expect it to decline, in line with the intention of the bank to increase its customer funding and reduce the share of market funds, which, at 12.3% of tangible banking assets (TBA), is already low. Like funding, liquidity is a key strength for UBID’s BCA, as indicated by our assigned score of ba2 for the liquidity resource's factor, and notably improved over the last couple of years. The increase in liquid assets was driven by two elements: 1) the strong deleveraging and limited new business lending; and 2) new regulatory requirements imposed by the CBI. As of end-2015, UBID had one of the best liquidity ratios among peers and we expect them to remain stable over the outlook period. At the same date, UBID had €6.7bn in liquid assets (or 22% of TBA) while its liquidity coverage ratio added up to 205%.

6

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

MOODY'S INVESTORS SERVICE

FINANCIAL INSTITUTIONS

Notching Considerations Affiliate Support UBID's current adjusted BCA of ba1 is based on our assessment of a very high probability of affiliate support coming from its parent, RBS, resulting in four notches of uplift from the BCA. As a reference point for the creditworthiness of RBS to arrive to UBID's adjusted BCA, we use the parent's BCA of ba1. RBS has reiterated its commitment to position UBID as a challenger bank to the domestic pillar banks in Ireland. Consequently, we expect that RBS will continue to maintain a high level of commitment toward UBID. Loss Given Failure UBID is subject to the EU Bank Recovery and Resolution Directive, which we consider to be an Operational Resolution Regime. As a result, in accordance with our methodology, we apply our LGF analysis, considering the risks faced by the different debt and deposit classes across the liability structure should the bank enter resolution. We assume residual tangible common equity of 3% and losses post-failure of 8% of tangible banking assets, a 25% run-off in “junior” wholesale deposits, a 5% run-off in preferred deposits, and assign a 25% probability to deposits being preferred to senior unsecured debt. These are in line with our standard assumptions. Our advanced LGF analysis indicates that UBID's deposits are likely to face low loss-given-failure due to the loss absorption provided by the presence of a modest amount of subordinated debt in the UBID's liability structure, as well as the substantial volume of deposits themselves. This results in the PRA of baa3, one notch above the ba1 adjusted BCA. The bank's issuer rating of Ba1 reflects the moderate loss-given-failure rate it is likely to face driven by the combination of no senior unsecured debt in the liability structure and the modest amount of debt subordinated to it. This results in a PRA at the same level as the adjusted BCA. Government Support The implementation of the BRRD has caused us to reconsider the potential for government support to benefit certain creditors. We now expect a low probability of government support for UBID's deposits and senior unsecured debt, resulting in no uplift from the PRA. Counterparty Risk Assessment UBID's CR Assessment is positioned at Baa1(cr)/Prime-2(cr). The CR Assessment, is positioned three notches above the BCA of ba1, based on the cushion against default provided to the senior obligations represented by the CR Assessment by subordinated instruments. The main difference with our Advanced LGF approach used to determine instrument ratings is that the CR Assessment captures the probability of default on certain senior obligations, rather than expected loss, therefore we focus purely on subordination and take no account of the volume of the instrument class.

7

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

FINANCIAL INSTITUTIONS

MOODY'S INVESTORS SERVICE

Rating Methodology and Scorecard Factors Exhibit 11

Ulster Bank Ireland DAC Macro Factors Weighted Macro Profile

Moderate +

100%

Historic Ratio

Macro Adjusted Score

Credit Trend

Assigned Score

Key driver #1

Key driver #2

Solvency Asset Risk Problem Loans / Gross Loans

37.3%

caa3



caa3

Quality of assets

Long-run loss performance

Capital TCE / RWA

28.5%

a1

←→

baa3

Stress capital resilience

Capital retention

Profitability Net Income / Tangible Assets

-0.8%

caa2

↓↓

b3

Financial Profile Factor

Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets Liquid Resources Liquid Banking Assets / Tangible Banking Assets Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA Instrument Class Counterparty Risk Assessment Deposits

ba3

Loan loss Expected trend charge coverage

b2

12.3%

baa1

←→

baa3

Market funding quality

21.7%

baa3

←→

ba2

Expected trend

baa2

Loss Given Failure notching 3 1

Additional notching 0 0

Expected trend

ba1 b1 0 0 0 0 Baa1 ba3-b2 b2 4 ba1 Preliminary Rating Assessment baa1 (cr) baa3

Government Support notching

Local Currency rating

0 0

Baa1 (cr) Baa3

Foreign Currency rating -Baa3

Source: Moody's Financial Metrics

8

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

FINANCIAL INSTITUTIONS

MOODY'S INVESTORS SERVICE

Ratings Exhibit 12

Category ULSTER BANK IRELAND DAC

Outlook Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Issuer Rating -Dom Curr ST Issuer Rating -Dom Curr

Moody's Rating

Stable Baa3/P-3 b2 ba1 Baa1(cr)/P-2(cr) Ba1 NP

ULT PARENT: THE ROYAL BANK OF SCOTLAND GROUP PLC

Outlook Senior Unsecured Subordinate Jr Subordinate Pref. Stock Pref. Stock Non-cumulative Preference Shelf Commercial Paper Other Short Term

Positive Ba1 Ba3 Ba3 (hyb) Ba3 (hyb) B1 (hyb) (P)B1 NP (P)NP

Source: Moody's Investors Service

9

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery

FINANCIAL INSTITUTIONS

MOODY'S INVESTORS SERVICE

© 2016 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ("MIS") ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS 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. 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 SUCH 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 appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. 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 Financial Services 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. It would be reckless and inappropriate for retail investors to use MOODY'S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser. 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 appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

REPORT NUMBER 1032528

10

6 July 2016

Ulster Bank Ireland DAC: Balanced funding profile and solid capitalization support recovery