FINANCIAL RESULTS IN FIRST HALF 2002 PRESENTATION FOR INVESTORS AND ANALYSTS

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2 FINANCIAL RESULTS IN FIRST HALF 2002 PRESENTATION FOR INVESTORS AND ANALYSTS London, August 6th,

3 Financial results in IH 2002 IH 2001 IH 2002 Change Operating income (PLN mil.) Net income (PLN mil.) ROE (%) Cost/Income (%) CAR (%) % % p.p p.p. 0.0 p.p. 3

4 4 Macroeconomic environment

5 Macroeconomic environment % 2,3 2,2 2,0 1,2 0,2-0,8 GDP growth in Poland, Germany and Euro Area in ,5 Q ,9 0,0 Q ,2 0,8 0,4 Q ,6 0,6 0,3-0,1 Q Q Forecast 0,9 1,0 0,7 0,5 0,8 Q ,6 Still weak economic growth in Poland and in Poland s main foreign trade partners Poland Germany Euro Area 5

6 Macroeconomic environment Volumes of credit to private households and corporate in Polish banking sector Q ,8 72,9 127,4 75,1 Q ,2 82,5 Q ,6 82,7 Q ,5 85,9 Q ,9 85,6 Q2 02 Flat tendencies in growth of banking sector volumes Between Q and Q corporate credit volume rose by 2.5 billion PLN (only 2%) Volumes of deposit to private households and corporate in Polish banking sector 201,2 205,7 213,4 203,4 207,7 206,2 Between Q and Q credit to private households rose by 10.5 billion PLN (but the dominant part of the growth was realized in Q3-2001) Q ,2 43,3 45,6 54,6 46,2 48,5 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Households Corporate

7 Macroeconomic environment Receivables turnover in days and quick ratio in the Polish economy Day ,806 46,3 0,778 0,766 0,749 47,5 48,4 47,0 Q Q Q Q ,82 0,80 0,78 0,76 0,74 0,72 0,70 0,68 Both turnover of receivables from goods deliveries and services and liquidity quick ratio deteriorated Turnover of receivables from deliveries and services lengthened from 47 days in Q to 48.4 days in Q Liquidity ratio = Receivables Qiuck ratio Marketable securities + cash + short-term receivables Short-term liabilities Liquidity quick ratio dropped from in Q to in Q Com. turn. = Receivables resulting from deliveries and services * 90 days Income from the sale of products, goods and materials 7

8 Macroeconomic environment GDP growth, number of bankruptcies declared by court and number of firms filing for bankruptcy GDP ,8 4,8 4,1 4, , GDP Declared bankruptcies Firms filing for bankruptcy 0 Number of firms Lower economic growth is accompanied by increasing number of bankruptcies Between 1999 and 2001 yearly number of bankruptcies almost doubled Starting from 1999 the number of firms filing for bankruptcy has increased faster than the number of declared bankruptcies 8

9 Macroeconomic environment 26, , , ,5 9 6,9 6,5 1,5 Lombard rate, rediscount rate, intervention rate and consumer inflation rate 4 I-99r. 5,6 II III 6,2 IV 17,0 15,5 13,0 V VI 6,5 6,3 VII VIII IX 14,0 X XI 20,5 19,0 16,5 XII 10,1 I-2000r II 10,3 III 21,5 20,0 17,5 9,8 IV V 11,6 10,7 10,2 VI VII VIII IX 23,0 X 21,5 21,0 19,0 19,5 19,5 18,5 18,0 17,0 17,0 17,0 15,5 15,5 14,5 15,5 13,5 12,5 14,0 12,0 12,0 11,5 13,0 11,0 10,5 11,5 7,4 10,0 10,0 6,9 9,5 9,0 8,5 8,5 4,3 6,2 3,6 5,2 3,43,5 3,0 1,9 3,3 1,6 Lombard rate Rediscount rate Intervention rate Consumer inflation rate XI XII I-2001 II III IV V VI VII VIII IX X XI XII I-2002 II III IV V VI Inflation has remained below the threshold of 4 % for eight months in a row In 2002 the Monetary Policy Council cut the intervention rate by 300 bps following its reduction of 750 bps in 2001 In June 2002 the real intervention rate has been reduced to the level below 7 % from above 9 % a year ago 9

10 Macroeconomic environment 0,0-2000,0-4000,0-6000,0-8000, , ,0 Current Account Deficit - cumulative in latest 12 months, US$ millions 8,3% PKB 6,3% PKB 5,2% PKB 4,0% PKB The CA/GDP ratio has remained at the level close to 4 % for 9 months in a row Strengthening of exports gives guarantee of further CA/GDP ratio stabilization , ,0 I-2000 II III IV V VI VII VIII IX X XI XII I-2001 II III IV V VI VII VIII IX X XI XII I-2002 II III IV V 10

11 Macroeconomic environment Exchange rates development (Monthly average; December 2000 = 100) 110,0 105,0 100,0 95,0 90,0 85,0 XII ,6 98,5 99,1 97,1 97,1 96,5 97,1 95,2 96,1 98,5 94,9 95,4 94,3 93,2 97,8 93,1 94,1 95,3 92,3 95,8 94,9 95,1 94,1 93,8 93,5 93,8 92,1 92,3 92,7 92,6 92,5 92,8 I-2001 II III IV 89,8 V VI 87,4 VII VIII IX X XI XII I-2002 II III IV V VI 105,4 99,2 95,5 93,3 VII Between December 2000 and July 2002 the exchange rate of the Zloty against both EURO and Dollar remained relatively stable Political events - like the change at the position of Finance Minister in July had only a short-term negative impact on the Zloty s exchange rate PLN/USD PLN/EURO 11

12 Macroeconomic environment 120,0 % 100,8 99,9 99,2 97,9 94,094,7 94,1 96,797,7 98,1 100,0 89,0 88,491,6 91,2 94,3 88,0 84,9 79,7 84,4 94,9 73,0 80,0 68,1 70,0 73,3 71,8 75,0 65,2 69,2 56,8 58,3 62,5 57,0 57,4 60,0 50,0 45,0 41,1 40,0 30,934,2 24,8 19,217,4 20,0 7,3 0,0 Advancement of the planned budget deficit I II III IV V VI VII VIII IX X XI XII The budget deficit to GDP ratio is higher than in previous years - 5.4% in 2002 compared to 4.5% in 2001 and 2.2% in 2000 However, in the first half of 2002 the advancement of the full-year planned deficit was the lowest since several years 1999r. 2000r. 2001r. 2002r. 12

13 13 Financial results in first half 2002

14 Balance sheet changes PLN bln 75,00-4,6% ASSETS 60,00 45,00 30,00 15,00 0,00 31,7 20,3 31,8 20,6 8,2 7,3 9,7 6,9 Net loans** Debt securities** Amounts due from banks** Other PLN billion 3.2 decrease of assets in first half driven mainly by diminish of other assets 14 PLN bln LIABILITIES 75,00 60,00 45,00 30,00 15,00 0, * IH ,9 53,0 5,9 4,1 6,4 51,4 4,2 4,6 Capital Deposits** Amounts due to banks** Other Net loans portfolio almost at this same level Equity decreased as results of dividend payment for 2001 * pro forma ** incl. interests

15 Loan portfolio Retail loans* mln zł ,8% % -5.7% -1.6% Retail loans growth by PLN 124 mil driven mainly by mortgage lending and overdraft decrease at the same time Mortgage Overdraft Other IH 2002 Corporate loans* mln zł ,3% The growth rate for corporate loans presents: - decrease of lending in foreign branches (PLN 43 mil.) - repayment of the central investment loan (PLN 98 mil.) PLN 719 mil. growth of the other loans since the beginning of the year Foreign Branches Central Invest. Other IH 2002 * capital ** pro forma

16 Deposit base Retail deposits* PLN mil ,4% FX PLN PLN 0.6 billion growth in retail deposits in the first half - stable market share at the level 18% IH IH 2002 Further growth of investment funds assets - total assets managed by PPIM amounts to PLN 3.4 billion PLN mil Corporate deposits* ,4% FX PLN Significant seasonal variability of corporate deposits base Insignificant (by 0.3 p.p) decrease of total deposits market share IH IH * capital

17 Investment funds Investment funds under PPIM management mln zł Q 01 3Q Q 02 2Q 02 Market share 25% 24,0% 24,4% 23,2% 20% 20,3% 20,9% 15% PLN 2.3 billion y-o-y growth of investment funds under PPIM management( PLN 0.54 billion in the first half 2002) Further growth of assets under PPIM management as a consequence of shift in retail customers investment preferences Insignificant decrease of market share to 23.2% in the first half % * pro forma 2Q 01 3Q Q 02 2Q 02

18 Savings of private households Market share * 19,0% 18,5% 18,4% 18,3% 18,3% Stable market share of private households savings 18,0% 17,5% Q 02 2Q 02 Householders + PPIM Householders Significant share of Pioneer Pekao TFI in market of investment funds 18 * accordance with new methodology of NBP

19 Revenue growth 6 Net interest margin (with SWAP) 5 4,9 5,0 5,0 4 PLN mil ,5% - 0,7% + 22,4% + 5,3% 3 IH 2001* 2001 IH Share of fees and commissions to total revenue % IH 2001 Net interest income Net commission income Other IQ % 25,5% 24,3% 24,0% 19 16% * pro forma IH IH 2002

20 Structure of fees and commissions growth ,5 10,6 15,0-0,7% 500 [mln zł] ,7 536, IH 2001 Loans Account service Other IH 2002 In IH 2002 slower growth of new loans in comparison with IH 2001 resulted in decrease of commission income level from loan activity in IH 2002 Commission from account service increased by 10.6 mil Other commissions growth by PLN 15 mil. mainly from corporate banking operations and from sale of subsidiaries products 20

21 Structure of costs changes mln zł ,6% - 4,1% - 39,4% - 6,3% ,6-21,0-4, IH 2001 Osobowe Rzeczowe + Amortyzacja BFG IH 2002 Conservative policy of cost control Decrease of all categories of costs in nominal and real term Lower cost of BFG caused by decrease of annual fee rate for BFG 21

22 Cost control Significant savings of the costs: Realisation of non personnel costs Cost of IT services Cost of real estate management Cost of security and transport - IH IH 2002 % -7,8 % - 4,3 % - 7,8 % Utilisation of Group synergies in the purchases of standard goods and services Intensification of saving resulting from real estate Cost of printing Office supply Cost of business trips - 41,4 % - 38,7 % - 13,9 % management Implementation of new technologies makes possible reduction of communication costs 22 Expected additional cost savings: - PLN mil. on the yearly basis

23 Efficiency improvement 55% Cost / Income 51,5% 50% 45% - 5,6 p.p. 45,9% Operating income 40% IH 2001 IH ,6 % Fees and commissions/personnel costs mln zł % 80% 94,2% 95,2% 99,2% 93,4% 101,2% IH 2001 IH % 23 40% IIQ 01 YTD IIIQ 01 YTD IVQ 01 YTD IQ 02 IIQ 02 YTD

24 Assets quality 20% 15% 10% 5% 0% Irregular loans* 14,0% 15,0% 19,7% 6,0% 3,4% 4,6% 4,6% 3,4% 7,1% 5,3% 3,8% 10,6% IH 2001** IVQ 2001** IH 2002 Lost Doubtful Sub-standard Provision coverage ratio Deterioration of quality in retail and corporate loan portfolio as results of macroeconomic environment Reclassification of loans for Szczecin Shipyard increased irregular loans share by 1.5 p.p. 55% 50% 50,7% 48,9% 49,5% Provision coverage ratio increased in result of provisions growth 45% 24 40% IH 2001 IVQ 2001 IH 2002 * loans for non-financial and budget clients and non-banking institution ** pro forma

25 Assets quality (ii) 70% 60% 50% Provision coverage ratio 68,1% 68,1% 64,7% Share of loans which are normaly serviced clasified as irrregular loans 70% 60% 50% 63,0% 40% 29,7% 32,1% 31,9% 40% 30% 20% 10% 0% 9,4% 9,5% 11,1% IVQ 01 IQ 02 IIQ 02 Sub-standard Doubtful Lost 30% 20% 10% 0% 18,0% 0,6% Sub-standard Doubtful Lost 25

26 Assets quality (iii) Sectors with significant influence on corporate irregular loans growth in domestic outlets of the Bank in IH 2002 Retail trade Manufacture of food products Manufacture of machinery and equipment Wholesale trade Construction and real estate services Manufacture and repair of ships

27 Provisions structure COST OF PROVISIONS 1H 2002 ( PLN mil.) Szczecin Shipyard 185 Other corporate loans 499 Retail loans 124 Foreign branches 41 General and other provisions 4 Cost of net provisions amounted to PLN 853 mil. in IH2002 Szczecin Shipyard provisions are almost 22% of all provisioning costs Provisions for retail loans are 14% of provisions costs in IH 2002 TOTAL

28 Szczecin Shipyard exposure JUNE 2002 Exposure ~ PLN 500 mil. JULY 2002 Repossession of four ships under construction Sale of two ships Exposure ~ PLN 210 mil. Estimated maximum potentaial loss - to PLN 150 mil. 28

29 Results of the subsidiaries PLN mil ,4-33,6 Since the beginning of 2002 results of subsidiaries presented on equity value base are included in the Bank profit and loss accounts as a result of changes in accounting standards ,8 Bank's results Subsidiaries' results Bank's results (incl.subsidiaries) Worse than expected results of subsidiaries decreased Banks results in IH 2002 by PLN 33.6 mil. (vs. positive impact of PLN 57.0 mil. dividends in IH 2002) 29

30 Pre tax and net profit Influence of provisions costs mln zł Net profit and ROE mln zł IQ 2001 IQ ,3% Net profit ROE 5,4% IH 2001 IH 2002 Pre tax profit 20% 15% 10% 5% 0% Operating income growth to PLN mil. Significant growth of provisions resulted in y-o-y pre tax profit decrease by more than 50%. Net profit for IH 2002 amounted to PLN mil. and ROE 5.4%.

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