You are on page 1of 14

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Primary Credit Analyst: Naoko Nemoto, Tokyo (81) 3-4550-8720; naoko.nemoto@standardandpoors.com Secondary Contacts: Ritesh Maheshwari, Singapore (65) 6239-6308; ritesh.maheshwari@standardandpoors.com Ryan Tsang, CFA, Hong Kong (852) 2533-3532; ryan.tsang@standardandpoors.com Peter Sikora, Melbourne (61) 3-9631-2094; peter.sikora@standardandpoors.com Geeta Chugh, Mumbai (91) 22-3342-1910; geeta.chugh@standardandpoors.com Andy Chang, CFA, FRM, Taipei (8862) 8722-5815; andy.chang@taiwanratings.com.tw Kiyoko Ohora, Tokyo (81) 3-4550-8704; kiyoko.ohora@standardandpoors.com

Table Of Contents
Asset Quality Will Remain Constrained Structural Issues Shackle Some Corporate Sectors Risk Factors For Asia-Pacific's Banking Sector Intense Competition Will Continue To Squeeze Banks' Loan Margins Banks Will Keep Looking Overseas To Expand Despite Higher Hurdles Competition For Deposits Is Intensifying Adequate Capital Will Serve As A Cushion Government Support Will Continue To Underpin Ratings Related Criteria And Research

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 1


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014
If a rising tide lifts all boats, it remains to be seen how a falling tide might affect Asia-Pacific's banking sector. Standard & Poor's Ratings Services believes financial institutions in the Asia-Pacific region may face more hurdles in 2014 after relatively resilient years because softer economic growth and wary financial markets will likely weigh on their asset quality. Although we see GDP growth in Asia-Pacific improving slightly to 5.4% from 5.3% in 2013, slower growth and tightening monetary conditions in China could have spillover effects on markets including Indonesia, Australia, Taiwan, Korea, and Hong Kong. In addition, the Federal Reserve--the monetary authority in the U.S.--will likely continue tapering its quantitative easing program, and this could lead to more volatile foreign exchange and interest rates. Another reason many banking systems in Asia-Pacific are more susceptible to external shocks stems from both household and corporate debt having risen to unprecedentedly high levels. Substantial inflows of capital and low interest rates amid global monetary easing have supported high credit growth in the region, but we expect such conditions to hit a turning point in 2014. Generally, we expect credit costs to rise, in particular from sectors with excessive indebtedness. Nevertheless, we believe a sharp increase in credit costs is unlikely because the region will benefit from a gradual recovery in the global economy. Regulators in many countries have also taken preemptive measures over the past few years to cool the expansion of property-related loans and asset inflation. We expect the profitability of Asia-Pacific's financial sector to remain constrained because, in our view, intense competition will squeeze net interest margins, loan growth will become subdued because households and the corporate sector in some countries are already highly indebted, and credit costs will likely rise somewhat. Overall, the region's banking industry will continue to face challenges in 2014. Overview We expect Asia-Pacific banks to face challenges in 2014, particularly in maintaining asset quality amid slower economic growth and wary financial markets. Swelling property prices and household indebtedness in some systems have led to economic imbalances that have exposed banks' loan quality to external shocks. A sharp rise in interest rates, an economic slowdown beyond our downside scenario, and a plunge in property prices are key risk factors, although we assess their likelihood as low. Stable funding and liquidity, adequate capitalization, and government support continue to underpin our ratings on Asia-Pacific banks.

Despite ongoing constraints on asset quality and earnings, we see the financial profiles of Asia-Pacific banks remaining sound overall and broadly consistent with our current ratings and outlooks. We believe adequate capitalization, strong liquidity, and government support will continue to underpin our ratings on most Asia-Pacific banks. Currently, 71% of our outlooks on Asia-Pacific bank ratings are stable.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 2


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Asset Quality Will Remain Constrained


Nonperforming loan (NPL) ratios have risen modestly in the banking systems of China, Korea, Vietnam, and elsewhere (see chart 1), and we expect loan quality to keep eroding and credit costs to continue rising in 2014. Despite our forecast for slightly better GDP growth of 5.4% in 2014, still-fragile conditions in key economies including the eurozone (European Economic and Monetary Union) and emerging countries continue to weigh on growth in Asia-Pacific, which is susceptible to a slowdown in global trade. We expect GDP growth in China to slow to 7.4% in 2014 from 7.6% in 2013, which is lower than the 9.5% annual average of the past 20 years. That said, recovery in the global economy appears to have moderated the threat of a hard landing in China and a sharp pull-back in investment growth has been avoided.
Chart 1

Structural Issues Shackle Some Corporate Sectors


Some countries are facing structural issues such as overcapacity and excessive debt. For instance, Chinese banks remain vulnerable to debt-laden local government financial platforms and many manufacturers such as steelmakers

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 3


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

and shipbuilders that are burdened by oversupply issues. In Korea, banks' exposures to the shipping, shipbuilding, and construction sectors could elevate credit costs. In India, we believe stressed assets (gross NPLs plus restructured advances) could increase to 12% by fiscal 2015-end, and stress is evident in the infrastructure, metals/mining, and textile sectors. Banks in Malaysia, Thailand, Korea, and Singapore will face risks arising from high household debt because indebted households are sensitive to rises in interest rates and slower economic growth. In our base-case outlook for 2014, we expect the ability of Asia-Pacific banks to absorb the potential increase in credit costs to be commensurate with our current ratings. Nevertheless, we believe the health of the region's banking system is susceptible to certain stress events, such as a severe slowdown in the global economy, a resurgence of the sovereign debt crisis in the eurozone, and a hard landing in China. We also believe a hike in interest rates, plummeting property prices, and a lack of effective macroeconomic policies or a delay in their implementation could pose risks in many countries. Below we outline risk factors that we believe could impair the credit profile of the national banking sectors in the region (see chart 2).
Chart 2

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 4


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Risk Factors For Asia-Pacific's Banking Sector


Slowdown in domestic economies
We see a low probability for most of the region's banking systems of an economic slowdown during 2014 that is materially worse than our current downside scenario (see "Credit Conditions: Asia-Pacific Growth Is Mostly Stable, But Some Lagging Credit Risks Remain For 2014," published Dec. 10, 2013, on RatingsDirect). In Thailand, however, we see a relatively high risk that political tensions between two major political factions will weigh on economic growth. The risk of a domestic slowdown is intermediate for most of the banking systems but high for India, Indonesia, and Vietnam. This is because relatively high levels of problematic loans--which include restructured loans and potential problem loans--weigh on those banking systems' performance and ability to extend loans. In Indonesia, the average ratio of gross NPLs to total loans of major banks declined to 4% in the first half of 2013 from 4.3% in 2012, supported by low interest rates, robust GDP growth, and rapid growth in loans extended, which increased the ratio's denominator. However, we believe loan quality is more vulnerable than the ratio indicates. Special-mention loans--or loans extended to borrowers with weak financial standing--have increased marginally since 2011 in Indonesia, and we believe this could be a leading indicator of troubles ahead.

Hard landing in China


Our scenario for a hard landing in China has GDP growth decreasing to 5%, leading to significant negative spillover effects for the economies and banking sectors in China, Indonesia, Japan, Korea, Taiwan, and Hong Kong. China is the most important trading partner for those countries, and a hard landing in China would lead to recessionary conditions in these countries that could severely hit the asset quality of their banks. Hong Kong banks have relatively high direct exposure to China and would thus suffer significant credit losses on those loans. New Zealand and Indonesia would be adversely affected through collapsing commodity prices in not only a hard-landing scenario but also in a general economic slowdown. By contrast, the banking sectors in the Philippines and India would be less affected because of these countries' low dependence on exports to China. We currently believe, however, that the prospect of such a scenario unfolding is low.

Eurozone risks
Reintensified risks in the eurozone could impair banking sectors in Asia-Pacific because the region is generally susceptible to global trade and Asia-Pacific countries ship 10%-20% of their total exports to the eurozone. Asia-Pacific banks have limited direct exposure to eurozone countries, and we believe the impact of an escalation in eurozone risk would be lower than that of a hard landing in China. That said, eurozone stress would likely result in higher wholesale funding costs for banks if it caused dislocation in global markets. Banks in Australia, New Zealand, and Korea depend somewhat more than others in the region on wholesale funding, which is more tightly linked to global market conditions.

Plunge in property prices


For banks in Australia, New Zealand, Singapore, Hong Kong, and Malaysia, a plunge in real estate prices is a key risk factor because home loans and real estate-related loans account for about 30%-50% of bank lending. A price decrease of 20%-30% would inevitably hurt banks' asset quality, although we view this risk as intermediate and believe it would

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 5


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

not materially damage banks' capitalization. We believe underlying housing demand is likely to remain strong in the long term, resulting in a floor for any price drop. In addition, generally prudent lending standards and strict regulations such as low maximum loan-to-value (LTV) ratios would mitigate banks' loan losses, in our view. Nevertheless, a drop in property prices could have a far-reaching impact on ratings if accompanied by various other negative developments, such as a significant spike in unemployment and sharp deterioration in economic growth. We see a low probability of this scenario unfolding in most of the region except New Zealand and Hong Kong, where government measures to rein in property prices could dampen rising house prices. We have already observed an adjustment in house prices in Hong Kong, while house price inflation seems to persist in New Zealand. A spike in interest rates could trigger corrections in property markets, and we see a high likelihood of a rise in interest rates in the Philippines and medium profitability in Indonesia. However, prices have risen only moderately in those countries. Meanwhile, in Singapore, where housing prices have increased sharply and affordability has dropped, we expect a moderate correction in prices in 2014 because the government has imposed various cooling measures that it will likely relax if prices correct too quickly.

Rising interest rates


A shift in the U.S. to tighter monetary policy in 2014 and subsequent run-up of market rates could trigger interest rate hikes in global and local markets. We see a relatively high probability of an interest rate hike in Singapore and Hong Kong because both countries have managed the stability of their currencies through short-term rates that follow market rates in the U.S. Meanwhile, we see an intermediate likelihood of an interest rate hike in India and Indonesia, which have current account deficits, because the central banks in these countries are motivated to raise interest rates to defend against currency depreciation and to curb inflation. However, both the Indian and Indonesian monetary authorities adjusted interest rates last year, which reduces the probability of a sharp rise in interest rates, in our view. Our base-case prospect for the entire region is for any rise in interest rates to be gradual and predictable. Higher interest rates would constrain the ability of borrowers to repay their debt and lead to higher credit costs. Households and corporates with heavier debt-servicing burdens are more vulnerable to such shocks. We see a spike in household debt in Malaysia, Thailand, and Singapore undermining the quality of loans. Housing loans predominantly bear floating rates, and prices are adjusted in tandem with changes in market interest rates. Despite these sensitivities, we hold the view that risk is intermediate for most of the region's banking system because slower but still-positive economic growth will support the debt servicing capacity of borrowers, and bank earnings could absorb any rise in credit costs. In general, banks have fixed-income portfolios that include government bonds whose values will decline as interest rates rise. That said, we do not expect reduced unrealized gains in fixed-income portfolios to have a material impact on banks' financial strength except that of Japanese banks. Standard & Poor's estimates unrealized losses for major Japanese banks on holdings of Japanese government bonds (JGBs) would amount to 2.1 trillion based on a 1% parallel shift of the JGB yield curb, which is equivalent to about 7% of the banks' Tier 1 capital. Nevertheless, we expect the Bank of Japan to stick to its accommodative monetary policy unless inflation reaches and remains at 2%, and thus see a low probability of a sharp rise in interest rates in 2014.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 6


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Intense Competition Will Continue To Squeeze Banks' Loan Margins


Low interest rates have constrained loan margins in Asia-Pacific, but we expect the recent decline in bank margins to moderate in 2014. This is because the U.S. Federal Reserve's tapering of its bond purchase program will, in our view, lead to a mild rise in interest rates globally, which will enhance yields in bank lending businesses. However, intense competition will hinder improvement in banks' net interest margins. Most banks will chase high-quality borrowers amid slower economic growth and an increase in less creditworthy borrowers, and competition over deposits will intensify while alternative financial products attract more investors. We also expect banks' trading gains from their fixed-income portfolios to decline this year because of rising interest rates. Banks will be under pressure to raise deposit rates to enhance funding stability as they prepare for the new Basel III liquidity requirements to be introduced in 2015. With flat interest margins and slightly higher credit costs, we expect the return on assets (ROA) of most banks to fall slightly in 2014. ROA will vary among countries (see chart 3). We categorize 15 Asia-Pacific countries into three groups based on the average ROA of rated banks: Group 1, with a high average ROA above 1.3%, comprises Indonesia, China, Hong Kong, the Philippines, and Thailand; Group 2, with a medium average ROA between 0.7% and 1.3%, includes Singapore, New Zealand, Australia, India, Sri Lanka, Vietnam, and Malaysia; and Group 3, with a low average ROA between 0.3% and 0.7%, includes Japan, Korea, and Taiwan. Although the banking systems of the group 1 countries will likely face more pressure on profitability because of potential credit risks, we do not expect the average ROA of these systems to change materially in the short term. In China, we expect financial disintermediation and further liberalization of deposit rates to constrain banks' net interest margins, but we believe they will maintain relatively sound profitability at about 0.8%-0.9% ROA.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 7


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Chart 3

Banks Will Keep Looking Overseas To Expand Despite Higher Hurdles


Facing narrower loan margins and saturation in domestic economies, banks in relatively developed markets such as Singapore, Hong Kong, Taiwan, Japan, and Malaysia have increased their lending in emerging countries including China, Indonesia, and Thailand. We expect this trend to persist in 2014. That said, we believe that overseas expansion will become more challenging in 2014. Foreign banks will face more hurdles in managing credit risks amid slower growth and high volatility in financial markets. For instance, the quality of China-related loans extended by Hong Kong banks deteriorated in 2013, and we expect the weaker financial profiles of some Chinese corporates--including those in the trade, manufacturing, and property sectors--to weigh on asset quality. Furthermore, foreign ownership is becoming more restrictive in some countries. For example, in Indonesia, the introduction of more stringent rules for owning banks and the collapse of the DBS/Bank Danamon deal in 2013 suggest that acquisitions in Indonesia will be difficult. Accordingly, we believe the expansion of Singaporean banks into Indonesia will be organic rather than acquisitive. Meanwhile, Japanese banks are gradually venturing into retail operations overseas, and we have seen a few large mergers and acquisitions (M&A) in 2013: Sumitomo Mitsui Financial Group Inc. announced its investment in an Indonesian bank, and Mitsubishi UFJ Financial Group Inc.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 8


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

announced its acquisition of a controlling interest in the Bank of Ayudhya Public Co. Ltd., a major Thai commercial bank. We believe it will take time, probably a few years through the business cycle, for Japanese banks to boost revenue through such retail operations.

Competition For Deposits Is Intensifying


Stable core deposits constitute a large portion of Asia-Pacific banks' liabilities, and these banks generally have good liquidity positions, which will continue to underpin the ratings. Some banking systems, however, will find it more challenging to maintain their current loan-to-deposit ratios. In China, competition over customers' assets will persist as wealth management products offering higher returns become available. In Hong Kong, Australia, and other areas, competition over retail deposits will likely intensify because banks are keen to increase core deposits to meet the Basel III liquidity regulations to be implemented in 2015. Banks in Australia, New Zealand, and Korea depend more on wholesale funding, which is more tightly linked to global market conditions. Although these systems have decreased their reliance on short-term wholesale funding over the past few years, the improvement has not been significant enough to alter our ratings view. We consider these banking systems to be sensitive to disruptions in offshore wholesale funding markets, and falling property prices or increased credit costs could magnify their problems under a stress scenario.

Adequate Capital Will Serve As A Cushion


Asia-Pacific banks generally have high levels of core capital, and the level of regulatory common Tier 1 capital of major banks in the region compares favorably against global peers. We expect adequate capital to serve as a cushion to absorb unexpected credit costs and sustain the ratings. The risk-adjusted capital (RAC) ratios of most large Asia-Pacific banks are higher than 7% and close to our threshold for "adequate" capitalization. The average RAC ratio of Asia-Pacific's major banks, at about 7.1%, is slightly lower than the roughly 7.4% average of the world's top 100 banks. We attribute the lower RAC level in Asia-Pacific to high economic risk and higher capital charges for bank assets in some countries in the region. In high-growth banking systems such as China, India, and Vietnam, banks must also constantly fortify their capital ratios. Major banks in Australia, New Zealand, Singapore, and Hong Kong have relatively high RAC ratios, while banks in Vietnam, Japan, and Thailand have relatively low RAC ratios. Despite the headwinds, we are maintaining our stable rating outlooks on most major banks in the region because we have factored potential risks into our projected RAC ratios for them. Although unexpected deterioration of the macro environment could lead us to change our assumptions, we believe the current capitalization of Asia-Pacific banks will be able to withstand downside risks.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 9


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Government Support Will Continue To Underpin Ratings


We expect the pressure on asset quality and earnings to constrain the stand-alone credit profiles (SACPs) of Asia-Pacific banks in the coming year. However, in our view, recovery of the global economy, a generally prudent regulatory stance, adequate capitalization, and good liquidity conditions in the region will mitigate such pressure. The distribution of SACPs in Asia-Pacific shows the median to be in the 'bbb' category (see chart 4). On the other hand, most of our bank ratings are in the 'A' category or higher (see chart 5). Final ratings differ from SACPs in that they incorporate support that the government or a strong parent group provides. We view the vast majority of governments in the region as "highly supportive" and believe they will take proactive measures to support creditors in their respective banking sectors.
Chart 4

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 10


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Chart 5

Our outlooks on 71% of our Asia-Pacific bank group ratings are stable (see chart 6). In Japan and India, however, we have negative outlooks on most bank ratings, reflecting our negative outlook on the sovereign ratings in contrast to our stable outlooks on the other sovereign ratings in the region. We revised the outlooks on four Malaysian banks to negative from stable in November 2013 to reflect growing economic imbalances in the country, such as higher property prices and rising household debt (see "Credit FAQ: What's Behind Our Negative Outlooks On Four Malaysian Banks," published Nov. 27, 2013, on RatingsDirect).

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 11


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Chart 6

For rated Asia-Pacific banks, any downward revision to the respective countries' total Banking Industry Country Risk Assessment (BICRA) scores could lead us to revise downward the banks' anchor SACPs. A drop in the BICRA score and anchor SACP could in turn spur downgrades of the banks, unless we see improvement in their specific rating factors. We assign negative economic risk trends for the banking systems in Australia, New Zealand, India, and Malaysia. But we view the trends in all other countries in the region as stable (see "2014 Asia-Pacific Financial Institutions Outlook: Rising Private-Sector Leverage May Overshadow Banks' Performance Amid Softer Economic Prospects," published Dec. 10, 2013, on RatingsDirect). However, we do not necessarily expect negative economic trends to translate into rating downgrades; in Australia, for example, our outlooks on almost all rated financial institutions are stable. If a sharp and prolonged economic downturn leads to increased credit costs and capital impairment, we could lower our ratings on Asia-Pacific banks. In addition, banks' aggressive lending practices, missteps by governments, and rapid credit growth could result in lower assessments of risk positions or lower credit risk scores in the total BICRA scores of their countries. On the other hand, we would consider raising our ratings on Asia-Pacific banks if they improve their capitalization and earnings. Considering the prevailing business conditions, we believe the upside potential is limited over the coming year.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 12


1260526 | 301447691

A Waning Economic Tide May Expose Hazards For Weaker Asia-Pacific Banks In 2014

Related Criteria And Research


Related Criteria
Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Banks: Rating Methodology And Assumptions, Nov. 9, 2011

Related Research
Sector Review: Taiwan's Banking Sector Maintains A Stable Credit Outlook In 2014, Amid Steadying Economic Growth, Feb. 13, 2014 Japan Banking Outlook 2014: Stable Amid Improved Economic Prospects, But Sudden Rate Changes Or Delayed Macro Structural Reform Could Spark Risks, Feb. 12, 2014 Hong Kong Banking Outlook 2014: China Risk Remains, U.S. Taper Holds Some Uncertainty For Margins, Feb. 12, 2014 China Banking Outlook 2014: A Turbulent Flight Ahead, Feb. 12, 2014 Thailand Banking Outlook 2014: Political Uncertainty Could Cast A Shadow On Banks' Performance, Feb. 11, 2014 Korea Banking Outlook 2014: Asset Quality And Profitability Likely To Remain Subdued, Feb. 11, 2014 Australian Banking Sector Outlook: Ratings Resilience Anticipated For 2014, Feb. 11, 2014 New Zealand Banking Sector Outlook: "Speed Limits" And Higher Capital Requirements May Just Be Enough To Slow Down New Zealand's Residential Property Market Inflation, Feb. 11, 2014 Vietnam Banking Outlook 2014: Reforms Critical For A Sustainable Recovery, Feb. 11, 2014 Indonesia Banking Outlook 2014: A Weakening Rupiah And Increasing Interest Rates Could Expose Credit Vulnerabilities, Feb. 11, 2014 Malaysia Banking Outlook 2014: Banks Brace For A Tougher Year In The Household Sector, Feb. 11, 2014 Singapore Banking Outlook 2014: Robust Fundamentals Should Enable Banks To Ride Out Testing Times, Feb. 11, 2014 Philippines Banking Outlook 2014: The Healthy Domestic Economy Signals A Good Year For Banks, Feb. 11, 2014 Sri Lanka Banking Outlook 2014: Push Toward Consolidation Could Pay Off Later, But Challenges Remain, Feb. 10, 2014 India Banking Outlook 2014: Little Respite In Sight, Feb. 10, 2014 Credit Conditions: Asia-Pacific Growth Is Mostly Stable, But Some Lagging Credit Risks Remain For 2014, Dec. 10, 2013 2014 Asia-Pacific Financial Institutions Outlook: Rising Private-Sector Leverage May Overshadow Banks' Performance Amid Softer Economic Prospects, Dec. 10, 2013 Credit FAQ: What's Behind Our Negative Outlooks On Four Malaysian Banks, Nov. 27, 2013 Rising Household Debt Could Weigh Down Asia's Banks, Oct. 28, 2013 Banking Risks Are Slowly Receding In Much Of The World, But Watch Out For The Hot Spots, Oct. 2, 2013

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 13


1260526 | 301447691

Copyright 2014 Standard & Poor's Financial Services LLC, a part of McGraw Hill Financial. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

FEBRUARY 18, 2014 14


1260526 | 301447691