Israel Discount Bank Ltd.

Regulatory Filings • Dec 16, 2021

CREDIT OPINION

14 December 2021

Update

RATINGS

	Israel Discount Bank Ltd.
--	---------------------------	--	--

Domicile	Tel Aviv, Israel
Long Term CRR	A1
Type	LT Counterparty Risk Rating - Fgn Curr
Outlook	Not Assigned
Long Term Debt	Not Assigned
Long Term Deposit	A2
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

Alexios Philippides VP-Senior Analyst	+357.2569.3031
alexios.philippides@moodys.com
Corina Moustra Associate Analyst corina.moustra@moodys.com	+357.2569.3003
Henry MacNevin Associate Managing Director henry.macnevin@moodys.com	+44.20.7772.1635

Sean Marion +44.20.7772.1056 MD-Financial Institutions sean.marion@moodys.com

Israel Discount Bank Ltd.

Update to credit analysis

Summary

Israel Discount Bank Ltd. (IDB)'s A2 long-term deposit ratings reflect (1) the bank's baa2 Baseline Credit Assessment (BCA); and (2) three notches of rating uplift based on our assessment of a very high probability of support from the Government of Israel (A1 stable), in case of need.

IDB's baa2 BCA reflects (1) its favourable deposit-based funding structure along with comfortable liquidity; (2) strong asset quality, with low levels of problem loans; and (3) strong growth prospects and enhanced efficiency that have supported the bank's profitability in recent years.

At the same time, IDB's standalone BCA reflects (1) adequate but modest capital buffers, with a tangible common equity (TCE)/risk-weighted assets (RWAs) ratio of 9.7% as of September 2021, below similarly-rated international peers mainly reflecting Bank of Israel's (BoI, the central bank) more conservative risk-weighting; (2) relatively high cost base despite substantial improvement in recent years; and (3) downside risks from potential geopolitical tensions and exposure to Israel's property market.

Exhibit 1 Rating Scorecard - Key financial ratios

These are our Banks Methodology scorecard ratios. Asset Risk and Profitability reflect the weaker of either the latest figure or the three-year and latest figure average. Capital is the latest reported figure. Funding Structure and Liquid Resources reflect the latest fiscal year-end figures.

Source: Moody's Investors Service

Credit strengths

• » Stable deposit-based funding structure and comfortable liquidity
• » Strong asset quality
• » Strengthened profitability, supported by enhanced efficiency
• » Very high likelihood of government support, in case of need, underpins the deposit ratings

Credit challenges

• » Geopolitical tensions and exposure to Israel's property market are downside risks
• » Modest risk-weighted capitalisation, but moderate leverage
• » Operating cost base remains higher than peers

Outlook

The stable outlook on IDB's long-term ratings reflects our expectation that the bank will sustain recent profitability improvements and will continue to moderate asset risk by growing into lower risk segments, and that its capital will remain broadly stable.

Factors that could lead to an upgrade

» IDB's ratings could be upgraded following (1) materially strengthened capital buffers; and (2) a sustained improvement in the bank's recurring profitability beyond what is currently expected, without an increase in the credit risk profile, in combination with stronger sovereign creditworthiness.

Factors that could lead to a downgrade

• » Downward pressure could be exerted on IDB's ratings if deteriorating operating conditions lead to a material weakening in asset quality, or if the bank's capitalisation declines from current levels.
• » If the bank does not sustain the ongoing improvements in its profitability and efficiency, or the reduction in asset risk, there could also be negative pressure on the ratings.
• » There could also be negative rating pressure if we consider that the government's willingness or capacity to provide support has materially declined.

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.

Key indicators

Exhibit 2

Israel Discount Bank Ltd. (Consolidated Financials) [1]

	09-212	12-202	12-192	12-182	12-172	CAGR/Avg.3
Total Assets (ILS Million)	313,411.0	293,969.0	259,823.0	239,176.0	221,221.0	9.74
Total Assets (USD Million)	97,147.1	91,556.3	75,223.8	64,006.4	63,722.1	11.94
Tangible Common Equity (ILS Million)	20,966.0	18,189.3	18,127.0	17,142.0	15,114.0	9.14
Tangible Common Equity (USD Million)	6,498.8	5,665.0	5,248.1	4,587.4	4,353.6	11.34
Problem Loans / Gross Loans (%)	1.8	1.9	1.2	1.2	1.7	1.65
Tangible Common Equity / Risk Weighted Assets (%)	9.7	9.1	9.6	9.8	9.2	9.56
Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%)	15.6	17.2	11.1	10.7	14.7	13.95
Net Interest Margin (%)	2.1	2.1	2.4	2.4	2.3	2.35
PPI / Average RWA (%)	2.0	1.9	2.0	1.8	1.7	1.96
Net Income / Tangible Assets (%)	1.0	0.5	0.7	0.7	0.6	0.75
Cost / Income Ratio (%)	60.4	61.7	63.0	65.9	66.6	63.55
Market Funds / Tangible Banking Assets (%)	7.3	8.5	6.2	5.4	4.6	6.45
Liquid Banking Assets / Tangible Banking Assets (%)	29.2	29.1	24.6	24.7	27.1	26.95
Gross Loans / Due to Customers (%)	85.5	86.5	92.5	90.1	86.8	88.35

[1] All figures and ratios are adjusted using Moody's standard adjustments. [2] Basel III - fully loaded or transitional phase-in; LOCAL GAAP. [3] May include rounding differences because of the scale of reported amounts. [4] Compound annual growth rate (%) based on the periods for the latest accounting regime. [5] Simple average of periods for the latest accounting regime. [6] Simple average of Basel III periods.

Sources: Moody's Investors Service and company filings

Profile

IDB is the fourth-largest banking group in Israel by assets with around 15% market share and total consolidated assets of NIS313 billion (around \$97 billion) as of September 2021. IDB also had a 14% market share in deposits and 17% in loans as of June 2021. The bank was incorporated in 1935.

IDB provides a full range of banking services out of its 177 branches in Israel as of the end of 2020. IDB has the largest international operations among Israeli banks, carried out through Israel Discount Bank of New York (IDB New York), its US subsidiary, which mainly focuses on mid-sized companies and private banking. IDB New York operates branches in New York, Florida and California and has representative offices in Latin America and in Israel. The bank's other key subsidiaries include Mercantile bank, a niche bank specialising in retail, small and medium-sized and municipal banking, and Israel Credit Cards, its majority-owned credit card company.

Detailed credit considerations

Strong asset quality, which will be supported by an increasing focus on lower risk mortgages; geopolitical tensions and exposure to Israel's property market are downside risks

Our Asset Risk assessment for IDB considers its currently strong asset quality and recent contained credit losses. Our assessment also takes into account the bank's higher than peer-average loan growth in recent years that drives some unseasoned risk and its previous through-the-cycle performance that had been relatively weaker than peers, but also ongoing reduction in asset risk in its loan portfolio reflecting an increasing share of relatively lower-risk residential mortgages, which is currently lower than peers. Similarly to peers, IDB is exposed to downside risks from potential geopolitical tensions and concentration to Israel's real estate market.

IDB's problem loans (defined as impaired loans and loans that are more than 90 days overdue) to gross loans remained broadly stable at 1.1% as of September 2021, excluding a predominantly government-backed exposure that became more than 90 days overdue (see Exhibit 3; including this exposure, the problem loans to gross loans ratio was 1.8%), compared to 1.3% and 1.2% as of the end of 2020 and 2019 respectively. We expect the bank's asset quality to remain strong, following the sharp decline in loans subject to payment deferrals, supported by Israel's strong economic recovery after last year's downturn. Only 0.7% of the bank's loans in Israel have not yet returned to repayment as of September 2021, down from a peak of 9.9% as of June 2020.

IDB's asset quality is strong, with a low level of problem loans and contained credit losses in recent years

days overdue Sources: Bank's financial statements; Moody's Investors Service

Following the reopening of the economy, the pick-up in economic activity and the sharp reduction in loans under payment deferral, the bank reversed some of the collective provisions it booked during 2020. IDB reported loan loss reversals equivalent to 0.5% of average gross loans in the first nine months of 2021. Credit costs (loan loss provision expenses to average gross loans) increased to 0.9% in 2020, driven predominantly by collective provisions and reflecting macroeconomic expectations and risks in specific sectors, up from an average of 0.3% for the period 2014-2019.

The bank's loan portfolio was somewhat tested under more challenging credit conditions during 2020, following strong growth in previous years. IDB's loan book grew by a compound annual rate of 9.5% over the period 2016-2019, significantly outpacing the market, which meant that a large part of the portfolio was unseasoned. Nevertheless, the bank's 2020 credit costs were broadly in line with domestic peers with similar loan characteristics. IDB's past through-the-cycle loan performance had been relatively weaker than peers, with average credit costs of 0.5% over the period 2006-2019 (that includes an entire economic cycle) exceeding that of its main peers. This was partly driven by a lower historic share of mortgages and a higher share of retail unsecured lending in the bank's portfolio, which we expect will continue over the coming quarters given that IDB is the only Israeli bank to consolidate a credit card company.

We expect asset risk in IDB's loan portfolio to reduce over time, however, reflecting an increasing share of relatively lower-risk residential mortgages. Mortgages, a key strategic focus for the bank, grew by a high 22% year-over-year and accounted for 24% of the bank's loan book as of September 2021 (see Exhibit 4), compared to 20% as of the end of 2018. The bank's market share in this segment remained lower than the its market share in other segments and affords significant potential for ongoing growth for IDB. Also, in recent years, the bank tightened its credit standards both in retail and business lending and eliminated exposures to holding companies, which had caused an increase in problem loans in the past, with no exposures to any borrower group exceeding 15% of its capital as of September 2021.

IDB's loan book diversification has improved

Loan book breakdown as of September 2021 (supervisory operating segments)

Source: Bank's financial results

Similarly to other Israeli banks, potential geopolitical tensions that could compromise business confidence and economic activity remain a downside risk. In addition, the bank has significant exposure to residential mortgages and the real estate sector that render its asset quality susceptible to developments in the Israeli property market. In addition to the housing mortgage exposure mentioned above, construction and real estate made up a further 15% of total lending as of September 2021. Rising house prices expose banks to a potential house price correction and banks are also exposed to potentially increased risk in the mortgage book from unexpectedly higher interest rates and a rise in unemployment.

For housing loans, risks are mitigated by the low level of household debt, macroprudential measures1 , which enforce tight underwriting standards and high capital buffers against mortgages. House prices have continued to increase strongly despite last year's economic downturn, but continued demand from a growing population and a structurally limited supply of new housing units provide price support. We see higher risk in commercial real estate and office space. Income-generating properties accounted for 35% of the bank's total credit to the construction and real estate sectors as of September 2021.

Modest risk-weighted capitalisation, but moderate leverage

We view IDB's risk-weighted capitalisation as modest. However, IDB's loss-absorption buffers are supported by relatively conservative regulatory risk-weights, especially on mortgage lending, which drive relatively moderate leverage. We expect the bank's capital buffers to remain broadly stable in the next 12-18 months as profit distribution resumes gradually, with capitalisation supported by a balance between sufficient internal capital generation against growth targets.

IDB's TCE/RWAs capital ratio was 9.7% as of September 2021, below that of similarly-rated international peers (see Exhibit 5). However, the BoI maintains a conservative approach to risk-weighting that results in higher loss-absorption buffers than capital ratios show. Banks use the standardised approach to risk-weighting and mortgages are risk-weighted according to loan-to-value, resulting in an average risk weight of over 50% in Israel, against much lower risk weights applied by banks using the internal ratings-based approach and even the 35% normally used in the standardised approach. The bank's Basel III leverage ratio was 6.3% as of September 2021, above the 4.5% minimum regulatory requirement that applied at that time, broadly at the same level as its TCE-to-total assets ratio of 6.7% as of the same period.

IDB's risk-weighted capitalisation is lower than global peers driven by conservative risk weights Risk-weighted capitalisation and leverage of Israeli banks and the global median

Data for IDB is as of September 2021, for the other Israeli banks as of June 2021 Source: Moody's Investors Service

IDB reported a Common Equity Tier 1 (CET1) ratio of 10.3% as of September 2021, exceeding the 8.2% minimum regulatory requirement and the bank's own internal target of 8.9%. In September, the BoI extended its leniency on lower banks' capital requirements by 1 percentage point until the end of 2021. This leniency was initially provided in March 2020 and reduced IDB's minimum CET1 ratio requirement from 9.2% as of the end of 20192 . The BoI also lifted its earlier guidance on suspension of profit distributions, but has asked banks to adopt a conservative approach on dividends, not exceeding 30% of 2020 and 2021 profits. Following this, IDB distributed 20% of third-quarter 2021 profits. Under the bank's dividend policy, IDB may distribute up to 30% of net profits in each quarter.

Strengthened profitability, supported by enhanced efficiency; cost base remains higher than peers

IDB's profitability consistently strengthened in the run-up to the pandemic-driven crisis, closing the gap with its domestic peers and strengthening resiliency at time of stress. We expect IDB's profitability will continue to benefit from ongoing cost initiatives and the bank's growth potential, following the pandemic-induced temporary drop in 2020, because of Israel's robust economic growth potential, process improvements at the bank that reduce time to market and a number of digital initiatives that can capture a broader share of the population than the bank's current clientele. The bank's efficiency initiatives have significantly lowered operating expenses in recent years. Nevertheless, the bank's cost base remains higher than both domestic and global peers.

Net income improved to 1.0% of tangible assets in the first nine months of 2021 from 0.5% in 2020, excluding one-off items. The improvement in bottom line profits was aided by significant loan loss provisioning reversals during the year, as mentioned earlier, strong revenue growth because of loan growth and higher CPI, which was negative in 2020. The bank's net interest margin was 2.2% in the first nine months of the year, from 2.1% in 2020 and 2.4% in 2019. We expect these trends to be sustained and provision expenses to normalise in 2022 but to remain contained supporting bottom-line profitability.

Profitability strengthened in recent years supported by enhanced efficiency and strong business growth, with the bank's net income to tangible assets ratio averaging 0.7% for the period 2017-2019 compared to an average of 0.4% for the period 2014-2016. The bank has taken numerous efficiency initiatives in recent years, such as reduction in headcount by 21% between 2013 and 2019 through successive early retirement plans and a reduction in the number of branches and real estate space. More recently, under the bank's largest ever early retirement plan, around 800 employees will have retired during 2020-2021, including those that retired naturally, a 16% reduction since the end of 2019, generating additional cost savings. Operating costs, excluding one-offs, declined to 2.0% of assets in the first nine months of 20213 , from 2.1% in 2020 and 2.5% in 2018 (see Exhibit 6). In combination with improvements on the revenue side, with the bank's income growing on average by around 5% since 2018, the bank's cost-to-income ratio improved to 61.7% in the first nine months of 20214 , compared to 66.1% in 2018.

IDB's cost base has declined substantially in recent years, but remains higher than its domestic peers

Operating expenses / Total assets

Based on Moody's adjusted figures; Data for IDB is for 9M 2021, all other Israeli banks for H1 2021 Source: Moody's Investors Service

Nevertheless, IDB's cost base remains higher than its domestic peers. We expect the bank to maintain its tight cost control and to focus on improving operational processes, further supporting profitability. Revenue growth will also remain a key strategic pillar, driven by a strengthened capacity for mortgage generation, with the bank's market share in new mortgages rising to 14.4% in the third quarter of 2021. We expect mortgage loan growth to remain strong because of housing demand from a relatively young and growing population in Israel, mitigating the impact from a lower yield on mortgages.

The bank also remains committed to expanding its digital offerings by deepening collaboration with third parties and fintechs. Following the divestment of the two largest banks' credit card companies, we note that IDB has been allowed for the time being to retain its majority owned credit card subsidiary, enhancing the bank's growth prospects, but continuing to weigh on its efficiency, with the consolidation of the credit card company being one factor behind the bank's higher cost base than peers.

Stable deposit-based funding structure and comfortable liquidity

IDB benefits from a growing and sticky deposit-based funding structure, with low reliance on potentially more confidence-sensitive market funding. Customer deposits accounted for 78% of total assets as of September 2021, comfortably funding the bank's loan portfolio with a net loans-to-deposits ratio of 84%. Customer deposits grew by a strong 9% year-over-year as of September 2021. Furthermore, market funds accounted for only 7% of tangible banking assets as of the same date. We expect IDB to remain primarily deposit funded, benefitting from the strong savings culture in Israel.

Deposits are relatively granular, whereby 42% of the bank's deposit base in Israel was from households and 21% from small businesses as of September 2021. Our assessment also considers that foreign deposits, which could be more vulnerable to an institution-specific loss in depositor confidence, made up 13% of total deposits as of September 2021. Nevertheless, deposits from institutional and capital markets investors were 8% of total deposits in Israel, considerably lower than peers. We note that both domestic and foreign deposits had remained stable during past systemic shocks in Israel.

The bank also maintains comfortable liquidity buffers at 29% of tangible banking assets as of September 2021. Cash and interbank balances accounted for 15% of assets, with securities accounting for an additional 15%. The securities portfolio primarily comprises of A1-rated Israeli government securities at 67% of total, and to a lesser extent mortgage-backed and asset-backed securities of US government agencies (17% of total), while 3% of the securities portfolio were investments in shares. IDB also reported a solid Liquidity Coverage Ratio at 130% as of September 2021, significantly above the 100% minimum requirement.

Source of facts and figures cited in this report

Unless noted otherwise, we have sourced data relating to systemwide trends and market shares from the central bank. Bank-specific figures originate from the banks' reports and are based on our own chart of accounts and may be adjusted for analytical purposes.

Please refer to Financial Statement Adjustments in the Analysis of Financial Institutions published on 9 August 2018. We do not use the Bank of Israel's exchange rates in converting figures from Israeli shekel into US dollars, so US dollar figures may differ from bank reported figures

ESG considerations

In line with our general view for the banking sector, IDB has a low exposure to Environmental risks. See our Environmental risks heat map for further information. Although Israel is exposed to environmental risk through rising temperatures, drought episodes and water scarcity given its geographical location in a semiarid climate zone, the authorities have taken a number of steps to address these risks, including through seawater desalination and wastewater recycling.

Overall, we believe banks, including IDB, face moderate Social risks; see also our Social risk heat map. 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 security 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 due to product misselling or other types of misconduct is a further social risk.

Societal trends are also relevant in a number of other areas, such as shifting customer preferences towards digital banking services, increasing information technology cost, aging population concerns in several countries, impacting demand for financial services or socially driven policy agendas that may translate into regulation that affects banks' revenue base. Specifically in Israel, authorities are taking measures to promote competition in the banking system and to reduce the cost of financial services for households and small business, which will weigh on the banks' profitability.

Further, strict labour laws and strong banking employee unions in Israel limit staffing flexibility and drive up staffing costs. However, the banks have reduced employee posts through successive early retirement plans and have implemented stringent cost control, which has allowed them to mitigate these challenges.

Governance is highly relevant for IDB, as it is to all players in the banking industry. Corporate governance weaknesses can lead to a deterioration in a company's credit quality, while governance strengths can benefit its credit profile. Governance risks are largely internal rather than externally driven, and for IDB we do not currently have material governance concerns. Nonetheless corporate governance remains a key credit consideration and requires ongoing monitoring.

Support and structural considerations

Government support considerations

IDB's A2 deposit ratings incorporate three notches of government support uplift from the bank's baa2 Adjusted BCA because of our expectation of a very high probability of extraordinary support from the Israeli authorities. This assessment is based on IDB's systemic importance as one of the country's five largest banking groups and the Israeli government's long standing practice of injecting capital into systemically important banks in case of need.

Counterparty Risk (CR) Assessment

IDB's CR Assessment is A1(cr)/P-1(cr)

Prior to government support, the CR Assessment is positioned one notch above the bank's baa2 Adjusted BCA, reflecting our view that its probability of default is lower than that of deposits. Senior obligations represented by the CR Assessment will be more likely preserved to limit contagion, minimise losses and avoid disruption of critical functions. The CR Assessment also benefits from government support uplift, in line with our support assumptions on deposits.

Counterparty Risk Ratings (CRRs)

IDB's CRR is A1/P-1

For jurisdictions with a non-operational resolution regime, like Israel, the starting point for the CRR is one notch above the bank's Adjusted BCA. The CRRs also benefit from three notches of government support uplift.

Methodology and scorecard

About Moody's Bank Scorecard

Our Bank Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity.

Rating methodology and scorecard factors

Exhibit 7

Israel Discount Bank Ltd.

Macro Factors
Weighted Macro Profile Strong	100%
Factor	Historic Ratio	Initial Score	Expected Trend	Assigned Score	Key driver #1	Key driver #2
Solvency
Asset Risk
Problem Loans / Gross Loans	1.8%	a2	↓	baa3	Sector concentration	Expected trend
Capital
Tangible Common Equity / Risk Weighted Assets (Basel III - transitional phase-in)	9.7%	ba1	↔	ba1	Risk-weighted capitalisation
Profitability
Net Income / Tangible Assets	0.7%	baa3	↔	baa3	Expected trend
Combined Solvency Score		baa2		baa3
Liquidity
Funding Structure
Market Funds / Tangible Banking Assets	8.5%	a2	↑	a2	Deposit quality	Expected trend
Liquid Resources
Liquid Banking Assets / Tangible Banking Assets	29.1%	baa1	↓	baa2	Expected trend
Combined Liquidity Score		a3		a3
Financial Profile				baa2
Qualitative Adjustments				Adjustment
Business Diversification				0
Opacity and Complexity				0
Corporate Behavior				0
Total Qualitative Adjustments				0
Sovereign or Affiliate constraint				A1
BCA Scorecard-indicated Outcome - Range				baa1 - baa3
Assigned BCA				baa2
Affiliate Support notching				0
Adjusted BCA				baa2

Instrument Class	Loss Given Failure notching	Additional Preliminary Rating notching Assessment				Government Support notching	Local Currency Rating	Foreign Currency Rating
Counterparty Risk Rating	1	0	baa1	3	A1	A1
Counterparty Risk Assessment	1	0	baa1 (cr)	3	A1(cr)
Deposits	0	0	baa2	3	A2	A2

[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 8

Category	Moody's Rating
ISRAEL DISCOUNT BANK LTD.
Outlook	Stable
Counterparty Risk Rating	A1/P-1
Bank Deposits	A2/P-1
Baseline Credit Assessment	baa2
Adjusted Baseline Credit Assessment	baa2
Counterparty Risk Assessment	A1(cr)/P-1(cr)
Source: Moody's Investors Service

Source: Moody's Investors Service

Endnotes

• 1 The measures include loan-to-value limits, a monthly repayment cap at 40% of a borrower's month salary and limit on the variable-rate of interest part of the mortgage.
• 2 In November 2020, the authorities also lowered the bank's leverage ratio requirement to 4.5%, from 5% previously
• 3 Including higher provision for bonuses due to improved financial performance in 2021 and excluding the cost of the early retirement plan.
• 4 Adjusted for the cost of the early retirement plan in 2021.

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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 credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from \$1,000 to approximately \$5,000,000. MCO and Moody's Investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service 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.

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 credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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