Lloyds Bank Plc

1 FINANCIAL INSTITUTIONSCREDIT OPINION9 January 2017 UpdateRATINGSL loyds Bank PlcDomicileUnited KingdomLong Term DebtA1 TypeSenior Unsecured - FgnCurrOutlookStableLong Term DepositA1 TypeLT Bank Deposits - FgnCurrOutlookStablePlease see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication Pipia44-20-7772-1690VP-Senior Sankauskaite44-20-7772-1092 Associate Mayers44-20-7772-5582 Associate Hill33-1-5330-1029 Managing Director Bank PlcSemiannual UpdateSummary Rating RationaleWe rate Lloyds Bank plc's ( Lloyds ) long-term deposits and senior unsecured debt at A1. Theseratings are underpinned by (1) the bank's baa1 Baseline Credit Assessment (BCA); (2) theresults of our Advanced Loss Given Failure (LGF) leading to a Preliminary Rating Assessment(PRA) for both deposits and senior unsecured debt two notches above the BCA and; (3) amoderate probability of government support, resulting in a further notch of uplift on thePRA for both deposit and senior unsecured debt ratings.

2 The bank's short-term deposit andshort-term debt ratings are Prime-1. We also assign a Counterparty Risk Assessment (CRAssessment) of Aa3(cr)/P-1(cr) to Lloyds . We rate the long- and short-term senior unsecureddebt of Lloyds Banking Group (LBG, the holding company) Baa1 and Prime-2, 28th June we changed the outlooks on Lloyds ' and LBG's long-term senior unsecureddebt and Lloyds ' deposit ratings to stable from positive, reflecting the headwinds for thebank's profitability and asset quality driven by our expectation of a weaker operatingenvironment following the UK's decision to leave the these challenges, lloyd 's credit fundamentals remain strong as reflected in its baa1 BCA, which is underpinned by: (1) a solid retail, commercial and insurance franchise; (2)robust capital metrics, supported by strong earnings generation.

3 (3) still sizable conductremediation charges; (4) improved asset quality, despite the bank's expansion in riskierconsumer finance and SME segments; and (5) stable and granular deposit base, butsomewhat heightened reliance on market 1 Key Financial RatiosSource: Moody's Banking Financial MetricsMOODY'S INVESTORS SERVICEFINANCIAL INSTITUTIONSC redit Strengths Solid asset quality with an impaired loan ratio at ; Strong capital metrics despite headwinds; Robust earnings generation supported by retail and commercial banking franchise; Stable and granular deposit Challenges Expectation of a more challenging operating environment in the UK following the outcome of the EU referendum Expansion of relatively riskier lending segments - consumer finance and SME - making the bank's asset quality more sensitive to adeterioration in the economic environment; Sizeable conduct remediation costs and other non-core losses, resulting in earnings volatility; Relatively high reliance on wholesale OutlookThe outlook on Lloyds ' deposits and senior unsecured debt and on LBG's senior unsecured debt is stable, reflecting the improvingtrends in asset quality and its strong capitalisation.

4 The outlook also incorporates our view that a prolonged period of uncertainty forthe UK, expected following the outcome of the UK referendum, will have negative implications for the country s medium-term growthoutlook and could lead to: (1) weaker operating profitability due to slower domestic credit demand; and (2) weaker credit quality dueto a likely modest increase in unemployment and downward pressure on property prices in the UK. These drivers will pressure revenues,asset quality and profitability metrics for all banks in the system, although improved credit fundamentals should enable Lloyds to bemore resilient to these strains than some of its that Could Lead to an UpgradeLloyds' BCA could be upgraded if the bank is able to (1) reduce the impact of conduct remediation and other non-core charges on itsprofitability and return to stable net income; and (2) maintain strong asset quality and capital metrics under the more challengingoperating environment.

5 An upgrade in Lloyds ' BCA would likely lead to an upgrade in all long-term that Could Lead to a DowngradeLloyds' BCA could be lowered following (1) a more acute than expected deterioration in the UK's operating environment, in particular,economic growth, unemployment and the property market; and/or (2) a material decline in the bank's capital or leverage metrics. Adownward movement in Lloyds ' BCA would likely result in downgrades to all long-term 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 for the most updated credit rating action information and rating 9 January 2017 Lloyds Bank Plc.

6 Semiannual UpdateMOODY'S INVESTORS SERVICEFINANCIAL INSTITUTIONSKey IndicatorsExhibit 2 Lloyds Banking Group plc (Consolidated Financials) [1] Assets (GBP million)807, , , , , Assets (EUR million)971, ,055, ,059, , ,097, Assets (USD million)1,079, ,146, ,282, ,350, ,447, Common Equity (GBP million)44, , , , , Common Equity (EUR million)53, , , , , Common Equity (USD million)59, , , , , Loans / Gross Loans (%) Common Equity / Risk Weighted Assets (%) Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Interest Margin (%) / Average RWA (%) Income / Tangible Assets (%) / Income Ratio (%) Funds / Tangible Banking Assets (%) Banking Assets / Tangible Banking Assets (%) loans / Due to customers (%) [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.

7 IFRS [4] Compound Annual Growth Rate basedon 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 foraverage calculationSource: Moody's Financial MetricsDetailed Rating ConsiderationsThe financial data in the following sections are sourced from LBG's financial statements unless otherwise asset quality but we expect modest increase in impairmentsLloyds' maintained asset quality in all core portfolios in 2016 and saw a marginal decline in its reported impaired loan ratio to atend-September 2016. This follows an 80 basis points improvement in the ratio to during the course of 2015, largely driven by thesale of the Irish commercial loan portfolio.

8 Following the deleveraging undertaken over the past few years, Lloyds ' run-off portfolio nowaccounts for billion, or under 3% of gross lending and around 4% of risk-weighted assets (as of end-June 2016).The bank continues to expand its UK consumer finance and SME portfolios which have historically represented a much smallerpercentage of its gross lending relative to mortgages: lending in these segments grew by 7% and 3%, respectively, in the first half of2016, and continued to grow in Q3. In addition, Lloyds recently announced1 it had agreed to acquire MBNA Ltd (MBNA, not rated), aUK credit card business, from a subsidiary of Bank of America (rated A1/A1 stable, baa2), which, upon completion, will increase its creditcard lending portfolio by 7 billion to approximately 16 finance accounted for of Lloyds ' total gross lending excluding reverse repos and other items, while SME lendingaccounted for as of June 2016.

9 We believe these asset types, despite their higher profit margins, are riskier than Lloyds ' traditionalmortgage and corporate credit products, potentially exposing the firm to greater downside risk if the economic s impairment charges increased by 34% to 449 million in the first three quarters of 2016, and its net cost of risk deterioratedsomewhat to 14 basis points from 11 basis points in the same period last year. This was due to lower write-backs and provision releases,while gross cost of risk remained stable at around 26 basis points. The bank's cost of risk will likely show some deterioration over theoutlook period, if the weaker expected economic growth has an impact on employment.

10 However, we expect only a moderate increasein impairments given the low interest rate environment and the bank's conservative underwriting 9 January 2017 Lloyds Bank Plc: Semiannual UpdateMOODY'S INVESTORS SERVICEFINANCIAL INSTITUTIONSE xhibit 3 Lloyds ' credit risk is decliningExhibit 4 Loan book composition, June 2016 Source: LBG financial reports and results presentationSource: LBG financial reportsLloyds' still faces significant operational risk from legacy products, which has been reflected in the record billion provisions setaside during 2015, and additional billion charge taken in the first nine months of 2016, of which billion relate to mis-soldpayment protection insurance (PPI) policies.