RETAIL BANKING OUTSIDE FRANCE Komerèní Banka Alexis Juan Société Générale Investor Day April 19th 2002
Disclaimer This presentation contains forward-looking statements ( targets under average economic and market conditions), which include comments with respect to our o objectives and strategies, and the results of our operations and our business, considering environment and risk conditions. However, by their nature, these forward-looking statements involve numerous assumptions, uncertainties and opportunities, both general and specific. The risk exists that these statements may not be fulfilled. We caution readers of this presentation not t to place undue reliance on these forward-looking statements as a number of factors could cause future Group results to differ materially from these targets. Forward-looking statements may be influenced in particular by factors such as fluctuations in interest rates, exchange rates and stock indices, the effects of competition in the areas in which we operate, and changes in economic, political, regulatory and technological t conditions. We caution that the foregoing list is not exhaustive. When relying on forward-looking statements to make decisions, investors should carefully consider the aforementioned factors as well as other uncertainties es and events. Société Générale - 2 -
KOMERCNI BANKA Overview presentation Local market analysis KB profile 1997- financial performance Strategic orientations Financial targets Société Générale - 3 -
LOCAL MARKET ANALYSIS Macroeconomic environment Key economic elements 10m inhabitants, 1.2m in Prague Second largest economy in Central Europe behind Poland GDP: EUR 61bn, GDP/capita: EUR 6,000 (1) Czech Crown: +13% vs. euro over 12 months Inflation: below 4% since 1999 Unemployment stable since 1999: 9% Highly concentrated banking sector: three largest banks account for 2/3 of deposits Czech Republic macro indicators 99-01 02-04 (2) Real GDP +2% +3.5% Inflation +3% +3.3% M2 +9% +10% 3M PRIBOR 6% 5% KB projections - (3) Individuals SMEs Corporates TOTAL Deposits +10% +6/7% +7/9% +8/9% Credits +20% +6/14% +8/10% +10% (1) France GDP: EUR 1,450bn, GDP/capita: EUR 24,200 (2) Annual average, in volume. Komercni Banka forecast (3) Growth over period. Komercni Banka forecast Société Générale - 4 -
LOCAL MARKET ANALYSIS Attractiveness of the Czech banking market Average annual growth potential ( 3-5 years, CAGR) 40% 30% 20% 10% 0% -10% Least attractive segments Very high competition Pension funds Insurance Leasing Demand and term deposits Construction savings loans Corporate lending Mortgages 0 0.05 0.1 0.15 0.2 0.25 0.3 Market concentration (1) Life insurance Non-life insurance Mutual funds Construction savings deposits Most attractive segments Credit cards Very low competition Size proportional to the market volume in (1) Herfindahl index: measurement of a market s concentration (sum of each bank s market share squared) Source: A.T. Kearney Société Générale - 5-1.00
LOCAL MARKET ANALYSIS Comparison of financial performances 250 Total BS BS = 2.4bn Employees = 454 454 HVB 2000 Citibank 2000 Total BS BS = 1.7bn Employees = 466 466 120 NBI/Employee (in EUR 000s) 90 60 30 Total BS BS = 12.8bn Employees = 12,551 KB 2000 CS (Erste Bk) Total BS BS = 13.7bn 2000 Employees = 16,410 Total BS BS = 13.5bn Employees = 11,525 KB GE Capital 2000 Total BS BS = 2.1bn Employees = 2,154 C.S.O.B. (KBC) 2000 Total BS BS = 16.7bn Employees = 13,201 0-10% -5% 0% 5% 20% 30% 40% 50% Pre-tax income/nbi Size proportional to the total balance sheet, 2000 consolidated data, IAS standards total balance sheet in EUR bn Source: S&P 2000 ranking of central European banks, Bankscope 2000, annual reports 2000 Société Générale - 6 -
KB PROFILE Strong position in key market segments Business profile Universal bank, also active in life and non-life insurance, asset management, pension funds, leasing and factoring 1.24m customers, of which 0.95m individuals 11,000 staff, of which 9,300 for KB Bank 320 points of sales, ensuring coverage of the whole country Financial profile ( consolidated figures, IAS standards) Total balance sheet: EUR 13.5bn Current market shares Individuals Deposits Loans Total 19% 19% Mass market 11% 16% Affluent 55% 50% Companies Deposits Loans Total 28% 13% Small 13 % 13% Medium 36% 14% Large 49% 13% Net banking income: EUR 826m Net income: EUR 91m Source: KB Marketing Analysis Société Générale - 7 -
1997- FINANCIAL PERFORMANCE A transformed financial situation Q3 1999 1st half 2000 End 2000 1st defeasance transaction: EUR 0.7bn of assets transferred 2nd defeasance transaction: EUR 1.5bn of assets transferred State guarantee of up to EUR 0.6bn received on a loan portfolio of EUR 1.9bn IAS standards (in EUR m) 1997 1998 1999 2000 Net banking income 727 784 690 752 826 Operating expenses -364-442 -455-515 -572 Gross operating income 363 342 235 237 254 Net allocation to provisions -336-652 -527-268 -154 Operating income 27-310 -292-31 100 Net income 35-312 -290-7 91 Customer loans (EUR bn) 8.7 7.6 6.5 4.6 5.0 Note: EUR 1 = CZK 32 Société Générale - 8 -
1997- FINANCIAL PERFORMANCE Prudent risk management IAS consolidated 31/12/ High levels of State guarantee, provisions and reserves, and collateral Conservative approach to loan portfolio provisioning strengthened in Q4 Customer loans Off-BS commitments Doubtful loans & commitments Czech State guarantee Provisions and reserves Disposable value of collateral CDO portfolio 80% rated A3 or above Riskiest part fully provisioned EUR 5.0bn EUR 2.2bn EUR 1.4bn EUR 0.6bn EUR 0.8bn EUR 2.6bn USD 426m Société Générale - 9 -
STRATEGIC ORIENTATIONS Capitalise on KB s strengths KB STRENGTHS Large customer base, high market shares Successful direct channels KB s subsidiaries to support core banking activities Transformed financial situation Competent staff Part of a large international Group Implement a new business model, based on on Société Générale s knowhow, leading to: to: strengthened market shares on on all all segments improved risk management high sustainable profitability Société Générale - 10 -
STRATEGIC ORIENTATIONS Key strategic orientations Strengthen KB s position in retail banking Implement new customer segmentation Optimise distribution coverage Enhance KB s image by leveraging both Société Générale s image and existing KB brand Improve efficiency Push a multi-channel distribution model Develop cross-selling initiatives Reduce operating costs Implement employees management & training programmes Enhance risk management Société Générale - 11 -
STRATEGIC ORIENTATIONS Transfer of know-how from Société Générale to KB OUR CHALLENGES Optimisation of distribution coverage and integration of all channels Service quality and customer care IT to support customer focused business model Human ressource management SOCIETE GENERALE SUPPORT Tested branch concept and multi-channel distribution Geomarketing implementation Société Générale s expertise in sales processes and methodologies Société Générale s proven solutions Training on segmentation and risk management Participation in the Group s international exchange programme Organisation, operational efficiency and risk management Strong and well recognised image Proven marketing/sales matrix organisation Centralised back-office model Credit risk organisation, systems and processes Expertise in Capital Markets and Corporate Finance Introduction of Société Générale brand and cultural values Société Générale - 12 -
STRATEGIC ORIENTATIONS Immediate implementation: Transformation Programme 2002- Over 150 strategic initiatives integrated into a Transformation Master Plan covering each bank division. Initiatives divided into: Quick wins in terms of revenues and costs, by June 2002 Medium-term initiatives to be implemented by end-2002 Long-term structural initiatives to be executed in 2003 EUR 160m capital expenditure over 2002- for IT redesign to support the new customer focused model Strong focus on training: +70% increase in budget in 2002 vs. Support of Société Générale experts to facilitate implementation of model: over 200 man-months budgeted in 2002 Project teams combining Société Générale experts and KB high potential employees Société Générale - 13 -
STRATEGIC ORIENTATIONS Increase in deposit and loan outstanding in - Annual growth in deposits: KB vs. market Annual growth in loans: KB vs. market Individuals KB: +12% Market: +10% KB: +31% Market: +20% SMEs (1) KB: +12% Market: +7% KB: +14% Market: +11% Corporates (2) KB: +11% Market: +8% KB: +13% Market: +9% Notes : (1) Annual turnover between EUR 0.5m and EUR 5m (2) Annual turnover exceeding EUR 5m Source: KB forecasts Société Générale - 14 -
FINANCIAL TARGETS Key indicators - Customer base: +50,000 per year Average number of products per client: 4.5 * in Fee & commission income/nbi: Employees: NBI/Employee: Operating expenses/employee: Total balance sheet: Individual loans/total loans: +9 points over period -24% over period +15% per year +4% per year +8% per year +6 points over period * All customer segments Société Générale - 15 -
FINANCIAL TARGETS KB income statement (IAS standards, unconsolidated) KB, IAS standards (in EUR m) Annual growth Net banking income 744 872 +5% Operating expenses -471-409 -5% Gross operating income 273 463 +19% Net allocation to provisions -167-110 -13% Operating income 106 353 +49% Net income 79 243 +45% ROE 11.6% 25% Cost/income ratio 63% 47% Note: EUR 1 = CZK 32 Société Générale - 16 -