BANKING IN CEE: adequate risk appetite crucial to win the upside

BANKING IN CEE: adequate risk appetite crucial to win the upside UniCredit Group CEE Strategic Analysis Vienna, November 9, 2009

Executive Summary 1 World economic growth is recovering and this boosts prospects in CEE - 2010 will show a positive regional growth, though this will remain below potential and subject to risks Strong regional differentiation is confirmed, with Central Europe better prepared to catch the international recovery. The performance of different banks in the same market can widely differ Markets are out of a liquidity-crisis mood credit quality and risk appetite are today s key constraints for CEE banking Medium term: CEE convergence story holds, but the banking model has to be rebalanced Financial penetration will continue, but the pace of growth will moderate, with availability of funding (domestic or external) the main driver Changing competition allows for leaner structure of costs Cost of risk to stay high, representing a constraint for banking profitability 2

Executive Summary 2 The changing competitive environment means also opportunities All CEE players have been affected by the crisis access to funding, credit quality, business/network diversification and strength the determinants of future success New entrants might take opportunities Winners new entrants or consolidated players, with appropriate risk appetite for CEE, able to leverage on strong funding, capital and network positioning and sound risk UCG ready to take the upside the Group can leverage on diversification, a strong regional network and newly raised capital to strengthen and optimize its positioning in the market 3

AGENDA 1. How the CEE banking landscape has changed in the short term 2. Banking through the crisis 3. International players - UniCredit ready to take the upside 4

Signs of recovery: still 2010 implies growth below potential and countries confirm to be very different Real GDP growth (%) 2009 2010 2011 Country Rank Low macro vulnerability 1 2 3 4 5 High macro vulnerability Poland Hungary Czech Rep. 1.4-6.1-4.2 1.8-0.6 1.4 2.6 2.4 3.5 Slovakia -5.4 2.1 3.5 Slovenia -8.0 0.5 1.4 Lithuania -17.0-7.0 4.4 Latvia -16.3-5.4 6.0 Russia Estonia Romania -15.3-7.5-3.8 0.4 5.1 3.5 Baltics Bulgaria Croatia -6.3-6.2-2.5-1.5 2.0 1.2 PL CZ SK SI HU HR BH RO BG Ukraine Turkey KZ Bosnia-H. Serbia Turkey Ukraine Russia Kazakhstan CEE-17-3.0-4.8-5.2-13.5-7.4-1.6-5.8-1.0-0.7 3.2 1.7 1.3 2.5 1.4 0.8 1.3 4.5 3.3 4.1 5.0 3.7 5 Note: (1) CEE-17: Poland, Hungary, Czech R., Slovakia, Slovenia, Lithuania, Latvia, Estonia, Romania, Bulgaria, Croatia, Bosnia-H, Serbia, Turkey, Ukraine, Russia and Kazakhstan Source: UniCredit Group CEE Strategic Analysis, CEE Research

Drivers of growth differ among countries. Recovery comes from the production sector, but both investment and consumption remain subdued Investments Consumption (real % growth) (real % growth) 2011 2011 2010 2009 2008-1.7-6.9 3.7 4.4 CE 2010 2009 2008 1.9 0.6 0.1 4.1 CE -12.8-2.5 2.2 14.1 SEE -8.3-0.9 2.3 5.1 SEE 2.3 2.3-33.2-6.0 Baltics -19.8-6.0 Baltics -9.2-2.2 5.6 6.7-18.4 3.6 Other -8.2 2.7 Other 4.1 8.2-40.0-30.0-20.0-10.0 0.0 10.0 20.0-30.0-20.0-10.0 0.0 10.0 6 Source: UniCredit Group CEE Research

Out of a liquidity-crisis mood, but funding availability and cost remain a constraint for CEE banking CEE external liabilities (1) bn 450 400 350 Volumes (l.s.) % on total liab. (r.s.) 25% 20% Banking sector external liabilities (% on total liabilities, June 2009) Slovakia Czech Rep. 3.5% 8.5% 300 15% Turkey 10.5% 250 200 150 10% Russia Serbia 16.0% 17.4% 100 5% Poland 18.7% 1,000 750 500 50 0 2005 2006 2007 2008 2009F Country Risk Premium 5Y CDS (USD, bp) Dec 08 October 28, 2009 3,274 1,168 0% Croatia Bulgaria Ukraine Romania Bosnia Slovenia Hungary Kazakhstan 21.5% 23.8% 26.8% 27.2% 29.5% 30.3% 31.0% 32.7% 250 Lithuania 44.6% 0 Poland Hungary Czech Rep. Slovakia Latvia Romania Bulgaria Croatia Turkey Ukraine Russia Kazakhstan Estonia Latvia 52.5% 53.9% 7 (1) CEE-17 Source: UniCredit Group CEE Strategic Analysis

Banks are rebalancing the loans/deposits gap Loan-to-deposits ratio (banking system level, %) Total banking system Loans (1) (June 09 vs Dec 08 % change FX adj) Total banking system deposits (1) (June 09 vs Dec 08 % change FX adj) Dec-08 Jun-09 CEE 112 CEE -0.2 CEE 3.7 Poland Hungary Czech R. Slovakia Slovenia 107 132 71 83 141 Poland Hungary Czech R. Slovakia Slovenia -2.4 3.1 1.4 1.0 1.6 Poland Hungary Czech R. Slovakia Slovenia -6.1 4.8 5.5 7.3 11.5 Estonia Latvia Lithuania 195 240 185 Estonia Latvia Lithuania -1.4-3.5-5.2 Estonia Latvia Lithuania -0.9 0.6 0.4 Bulgaria Romania Croatia Bosnia-H. Serbia 125 122 127 124 141 Bulgaria Romania Croatia Bosnia-H. Serbia -3.0-0.4 1.5 3.3 10.6 Bulgaria Romania Croatia Bosnia-H. Serbia -2.3-2.2 0.0 1.7 6.7 Turkey Ukraine Russia Kazakhstan 80 223 120 166 Turkey Ukraine Russia Kazakhstan -0.1-0.8-1.2 0.2 Turkey Ukraine Russia Kazakhstan -8.8 2.4 5.5 6.8 8 Notes: (1) Nominal growth rates are corrected for the exchange rate changes weighted by the relevance of FX in loans' volumes in the previous period. This allows to have an idea of growth of loans and deposit which is independent from the pure effect of depreciation of the currency Source: UniCredit Group CEE Strategic Analysis

Deterioration in credit quality is today s challenge Non-performing loans ratio (total banking system, in % of gross loans) (1 ) Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 YTD Central Europe Poland 4.5 4.1 4.2 5.0 6.0 176bp Hungary 3.8 4.1 4.5 5.2 6.5 196bp Czech R. 2.7 3.0 3.3 3.7 4.3 103bp Slovakia 2.9 2.9 3.2 3.5 4.2 103bp Slovenia - - 2.9 - - - Baltics 1.5 1.8 2.4 4.0 6.2 379bp SEE Bulgaria 2.7 2.8 3.2 3.2 4.4 114bp Romania 4.6 5.1 6.3 9.1 11.3 497bp Croatia 4.8 4.8 4.8 5.1 - - Other Turkey 3.0 3.0 3.5 4.1 4.6 113bp Ukraine - - 17.4-29.9 1250bp Russia 9.0 8.9 12.7 13.9 16.0 330bp Kazakhstan 7.4 7.5 10.8 16.2 26.1 1533bp (1) Incl. loans classified under substandard, doubtful and loss categories; in Ukraine, data refer to problem credits (overdue and doubtful); in Kazakhstan, data refer to doubtful loans under category 2,4,5 and bad loans; in Romania, data refer to loans classified under doubtful and loss categories 9 Source: UniCredit Group CEE Strategic Analysis, local CBs

AGENDA 1. How the CEE banking landscape has changed in the short term 2. Banking through the crisis 3. International players - UniCredit ready to take the upside 10

The long term potential of the CEE region is intact Real income convergence in CEE (1) Financial deepening process (% of GDP and PPS in dollar terms) 100% 90% GDP per capita (PPP) % of Eurozone 800 Western Europe 80% 70% 60% 50% 40% 30% 20% 10% 0% Euro area Czech R. Slovak R. Estonia Hungary Lithuania Latvia Poland Croatia Russia Turkey Romania Bulgaria Belarus Kazakh. Serbia Ukraine Bosnia H. Total banking assets 600 400 200 0 CEE 5,000 15,000 25,000 35,000 45,000 GDP per capita The story of economic and income convergence towards the standards of Western countries, as well as the potential related to the banking sector penetration gap, continue to hold 11 (1) CEE incl. new EU member states, Croatia and Turkey; calculation based on GDP per capita expressed in dollar terms Source: UniCredit Group CEE Strategic Analysis, IMF, ECB

CEE banking - the medium-term scenario implies new constraints and new competitive advantages KEY CONSTRAINTS KEY COMPETITIVE ADVANTAGES More balance growth model still with external funding Lending tied to funding strategies, but external funding still necessary Strong advantage for banks with a widespread network and/or strong and motivated foreign owner More moderate convergence Retail network crucial for deposit gathering Lending growth to re-start from corporate In retail, a structural gap holds for mortgage, while consumer credit already at international standards Change in demand simpler products / services In the short term, less retail lending and less investment financing. More trade financing and in general services Cost control The crisis opening the way to leaner structures and deflating bubbles in staff and network costs Risk appetite and cost of risk Quality of existing loan portfolio key in determining whether banks will be forced to concentrate on risk control or might start leveraging on new opportunities 12 Substantial change in the competitive framework Stronger state role New entrants profiting from others risk aversion Systemic banks with long term approach might benefit, provided adequate risk appetite

Financial penetration moderating but continuing; credit expansion more tied to deposits growth After some re-balancing in 2009 and H1 2010 loan-to-deposits ratio in CEE 1 to gradually increase over time 140 120 EMU Loans (%GDP): 127 EMU Deposits (% GDP): 107 100 Our forecast 80 60 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 CEE Loans (% GDP) CEE Deposits (% GDP) CEE Loan-to-deposits ratio (%) 13 (1) CEE aggregate including all EU member states, Bosnia, Serbia, Croatia, Turkey, Russia, Ukraine and Kazakhstan Source: UniCredit Group CEE Strategic Analysis

Lending growth will gradually restart from corporate, with deposits also showing some moderate acceleration Total Loans, yoy % LC Total Deposits yoy % LC 2008 2009 2010 2011 2008 2009 2010 2011 Poland 37% 6% 5% 6% Poland 20% 7% 4% 5% Hungary 18% -0.2% 1% 6% Hungary 11% 6% 4% 6% Czech Rep. 15% 3% 9% 11% Czech Rep. 8% 1% 3% 6% Slovakia 15% 1% 8% 11% Slovakia 15% -5% 3% 7% Slovenia 18% 3% 4% 6% Slovenia 7% 11% 2% 5% Baltics 13% -7% -6% 5% Baltics 4% -2% -12% 6% Romania 35% 1% 5% 10% Romania 19% 6% 8% 12% Bulgaria 33% 1% 3% 8% Bulgaria 9% 1% 4% 9% Croatia 15% 4% 4% 5% Croatia 6% -3% 1% 5% Bosnia-H. 22% -2% 2% 5% Bosnia-H. -1% 2% 3% 6% Serbia 35% 19% 8% 9% Serbia 8% 13% 11% 10% Turkey 30% 5% 12% 19% Turkey 27% 12% 9% 15% Ukraine 72% -3% 0% 6% Ukraine 27% -16% 3% 9% Russia 34% 1% 7% 12% Russia 20% 12% 10% 13% Kazakhstan 6% -14% 13% 17% Kazakhstan 20% 20% 15% 14% CEE 14% -5% 8% 15% CEE 4% 1% 9% 15% 14 (1) CEE aggregate including all EU member states, Bosnia, Serbia, Croatia, Turkey, Russia, Ukraine and Kazakhstan Source: UniCredit Group CEE Strategic Analysis

A structural change in the cost structure Cost-to-income ratio (%) (1) 60 CE SEE Cost savings programmes coming into the spotlight 55 50 45 40 Baltics Broader Europe 2005 2007 2009 2011 2013 2015 Branch expansion plans halted during the crisis by almost all banking groups operating in the region Players who want to catch the region s upside need to restart some investment activities as soon as market conditions allow 15 (1) CE: Czech R., Hungary, Poland, Slovakia, Slovenia; SEE: Bosnia, Bulgaria, Croatia, Romania, Serbia; Other: Kazakhstan, Russia, Ukraine, Turkey Source: UniCredit Group CEE Strategic Analysis

Non-performing loans to peak in 2010, but cost of risk already converging Non performing loans, in % of gross loans (1),(2) 23% Cost of Risk (provisions (3) in % Ø gross loans) (2) 8% 20% CE SEE Baltics Other 7% CE SEE Baltics Other 18% 6% 15% 5% 13% 10% 4% 8% 3% 5% 2% 3% 1% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 16 (1) Substandard, doubtful and loss on average gross loans; in Ukraine, data refer to problem credits (overdue and doubtful); in Kazakhstan, data refer to doubtful loans under category 2,4,5 and bad loans; in Romania, only doubtful and loss; (2) CE: Czech R., Hungary, Poland, Slovakia, Slovenia; SEE: Bosnia, Bulgaria, Croatia, Romania, Serbia; Other: Kazakhstan, Russia, Ukraine, Turkey; (3) Generic + Specific provisions. Source: UniCredit Group CEE Strategic Analysis

Banking profitability subdued in the short term as cost of risk is the main cause. Single players can perform quite differently from the market Return on Assets 3.0% TK Size of banking profits of each period 2.5% 2.0% Russia TK TK TK 1.5% 1.0% CE SEE CE CE UA and KZ SEE Russia 0.5% SEE Baltics 0.0% -0.5% -1.0% Central Europe SEE Turkey Russia UA and KZ Baltics Russia Baltics Baltics UA and KZ UA and KZ -1.5% -2.0% avg 2007-'08 2009 avg 2010-'11 avg 2011-'15 18 Source: UniCredit Group CEE Strategic Analysis

AGENDA 1. How the CEE banking landscape has changed in the short term 2. Banking through the crisis 3. International players - UniCredit ready to take the upside 19

UniCredit Group is the largest player in CEE, well diversified, with 12% of group assets in the region DATA AS OF 2008 Total Assets (1) EUR bn Net Profit (2) EUR mn Number of Branches Countries of presence (3) CEE, % share in Group Assets UniCredit 53% 121.6 2,577 4,005 19 12 Raiffeisen 2051% 85.4 1,078 3,231 16 54 Erste 157% 79.3 1,569 2,099 7 39 KBC 112% (4) 71.6 309 1,940 12 20 (5) SocGen 65.9 1,201 41% 2,609 16 6 IntesaSP 5% 42.5 186 1,781 11 7 OTP n.s. 35.2 958 1,573 9 100..% Contribution of CEE in Group Net Profit (After tax, after minority interests) 20 Notes: (1) 100% of total assets, and profit after tax (before minority interests) for controlled companies (stake > 50%) and pro rata for non- controlled companies (stake < 50%). (2) After tax, before minority interest. (3) Including direct and indirect presence in the 25 CEE countries, excluding representative offices. (4) KBC Group recorded a loss in 2008. (5) SocGen including ProFin Bank in Ukraine. Source: UniCredit Group CEE Strategic Analysis

Winners and losers - times of change bring strong opportunities for those able to catch them 21 Source: UniCredit Group CEE Strategic Analysis

Winners to be those who enjoy an adequate risk appetite and can leverage on diversification and strong funding and network base CEE International players - Key strategic drivers (1) Profit potential of top players (2), (3) UCG Raiffeisen Intl Erste KBC SoGen Intesa OTP Assets in CEE, % of Group Assets 12 54 39 20 6 7 100 Group T1 Ratio (4), % 8.5 8.9 8.1 10.8 9.9 8.1 12 CEE Loans (5) / Deposits, % 118 127 95 98 96 118 129 CEE GAP (6), % Group Assets 1.5 10.1 3.8 1.4 0.5 1.1 14.2 Group CDS (current), bps 81 248 128 157 84 47 - CEE Cost of Risk, bps ~ 200 > 300 ~ 200 n.a. n.a. ~ 200 (7) > 300 Note: (1) T1 ratio is pro-forma Jun. 2009; CDS as of Oct. 2009, Cost of Risk as of Jun.2009, other data as of Dec. 2008; (2) ROA and CDS for each player have been calculated as weighted average of each country of presence (CEE17 perimeter, weighted for total assets of the player in each market); (3) The dimension of the balls is total controlled assets in CEE (2008); (4) It includes private and public T1 injections announced till mid October 2009; (5) Net loans; (6) CEE gap = sum of various (loans-deposits) only if loans > deposits. Loans are net loans; (7) Calculated for "International Subsidiary Banks", which include also Bank of Alexandria in Egypt 22 Source: UniCredit Group CEE Strategic Analysis, Bloomberg

Good market potential in 2010: UCG well positioned to catch it CEE REGION: ASSESSMENT OF COUNTRY AND BANK POTENTIALS (1) Economy/banking growth potential vs. Risk environment low high Czech R. Slovakia Slovenia Serbia Kazakhstan Ukraine Baltics Russia Turkey Romania Hungary Croatia Bosnia-H. Poland Bulgaria ~56% of UCG CEE Revenues ~79% of UCG CEE Revenues Weight in total UCG CEE Revenues (full year 2008&H1 2009 quarterly average) low UCG Banks positioning high 23 Note: (1) Ranking on Y axis taking into account countries macro and banking growth potential (based on expected GDP growth, level of financial deepening, relevance of mortgage market etc.) and risk factors (credit quality, funding gap etc.); ranking on X axis taking into account relevance of UCG CEE banks in the local market, potential for expansion and structure, quality and funding position compared to market average. Source: UniCredit Group CEE Strategic Analysis

Local competition likely to change: network optimization, some new entrants, state in CIS countries Top 10 banks by total assets (Rank as of Dec.2008) 24 Source: UniCredit Group CEE Strategic Analysis

Conclusions Economic recovery, but risk and volatility remain. Strong regional differentiation is confirmed Credit quality and risk appetite today s key constraints for CEE banking Medium term: CEE convergence story holds, but the banking model has to be rebalanced The changing competitive environment means also opportunities Winners new entrants or consolidated players, with appropriate risk appetite for CEE, able to leverage on strong funding position (both through a strong domestic network or through international channels) and with sound risk UCG ready to take the upside can leverage on diversification, strong regional network and newly raised capital to strengthen and optimize its positioning in the market 25