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Česká spořitelna

Česká spořitelna. European Banking & Financial Forum 2009 Gernot Mittendorfer , CEO of Česká spořitelna Praha, 2 5 March 2009. Presentation topics. Czech macroeconomic environment Czech economy to be hit only cyclically What can be done to mitigate the impact? Banking market

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Česká spořitelna

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  1. Česká spořitelna European Banking & Financial Forum 2009 Gernot Mittendorfer, CEO of Česká spořitelna Praha, 25 March 2009

  2. Presentation topics • Czech macroeconomic environment • Czech economy to be hit only cyclically • What can be done to mitigate the impact? • Banking market • Banking market development • Performance of Ceska sporitelna • Best results in history • What can Ceska sporitelna do? Praha, 25 March 2009

  3. Crisis Hits Czech Republic–Cyclical or Structural Effects? (i)Czech Republic to “only“ be hit cyclically • Crisis unfolding in two overlapping waves 1st wave (summer’07-present): Czech Republic coped very well with this (minuscule banking exposure to toxic assets); 2st wave (Fall’08-present): classic real-economy crisis. Frozen credit drags the US, EMU economy down  impact on Czech Republic • Czech Republic entered the crisis with • No external or internal macroeconomic imbalances • Low levels of external debt and low share of short-term debt thereof; • FX reserves covering 35% of external debt (regional average 29%); • CA + FDI > 0 for Czech Republic, regional avg. -5% of GDP, EMU avg. -10% Praha, 25 March 2009

  4. Crisis Hits Czech Republic–Cyclical or Structural Effects? (ii)Czech Republic to “only“ be hit cyclically • Banking sector in a good shape • Conservative (no risky investments necessary due to ample investment opportunities at home); • Isolated (not dependent on outside financing due to abundance of resources from public); • with relatively small FX exposure (FX loans 14% of total loans, for consumers, it is well under 1%) • LTD well below 80% • Domestic sector not heavily indebted: private sector’s debt only 50% of annual GDP • Public debt stands at 29% of annual GDP • Regional avg. 26%, EMU avg. 55% • Well below Maastricht criteria (60%)  Czech Republic has quite a space for fiscal stimulus • Czech Republic does not need to solve structural issues in crisis times, does not face the risk of disorderly structural adjustment (for example, of C/A deficit) and can concentrate on offsetting the cyclical downturn Praha, 25 March 2009

  5. Crisis Hits Czech Republic – How to dampen the impact ? (i)Czech Republic should focus on supply-side measures • Czech economy is dependent on Western Europe, on industry and is small and open • One third of exports goes to Germany – link between Germany and Czech Republic is tight; • 37% of real gross production was exported in 2007 (substantially more than in most of Western Europe); • 33% of value added was generated by industry in ’07 • Czech households spend around 60% of income on goods and 40% on services • Estimate: roughly 1/4-1/3 of the household consumption is covered by import • Demand-side measures do not make much sense in this light: closed German economy can profit from increase in aggregate demand, open Czech economy will „send“ at least some of the stimulus-money abroad Supply-side measures appear better suited Praha, 25 March 2009

  6. National anti-crisis plan (i)Relatively good in this respect • Approved by the Czechgovernment on Feb16, 2009; most of the measures already implemented (as part of state budget 2009) or easily to be implemented (executive decisions necessary only) • Already realized (as part of 2009 budget) or having previously been approved by government: • Lower corporate income tax rate (20%, companies to retain some CZK 6bnmore than in 2008); • Lower unemployment insurance contributions (as of January 1st, 2009 for both employee and employer, impact according to Ministry of Finance: CZK 18 bn); • Increase in loan guarantees for small and medium enterprises (increased capital for CMRZB, a state-run guarantee agency) and for agriculture; • More investment for transportation infrastructure (SFDI, a state fund for investment in infrastructure has some CZK 2.6 bn more than in ’08); • Support of exports (CZK 2 bn more for Czech Export Bank and for EGAP, a state-run export-loans guarantee company); • More investment to science, research and development (some CZK 1.8 bn more than in 2008); • Lower monthly advances for corporate income tax (since Dec ’08, Czech tax authorities have been softening the conditions for companies). Praha, 25 March 2009

  7. National anti-crisis plan (ii)Relatively good in this respect • Suggested measures requiring the approval of the legislature: • Lower social-security contributions (of varying size, for employees with wages up to 1.15x average wage, MF estimate: CZK -18 bn) and no need for small companies (<5 employees) to pay advances on income tax; • Quicker depreciation of company assets (valid for assets purchased between January 2009 and June 2010, MF impact estimate: some CZK +9 bn for companies); • Amendments to the Bankruptcy law; • Lower VAT on all company cars (no restrictions on purchase price etc.) and faster VAT refunds (within 15 days). • Suggested executive measures (requiring no approval of the legislature): • Further loan-guarantees for small and medium enterprises (via further capital infusion to CMRZB); • Energy savings and renewable sources of energy for heat production in buildings (some CZK 25 bn in Green Investment Scheme, as of April 2009); • Education and training of employees etc. (funds from European Social Fund). Praha, 25 March 2009

  8. Expected macroeconomic developmentEconomy expected to grow in 2010 • 2009 GDP dragged down on outside weakness… • Baseline: Czech economy to contract by 1.3% in 2009 before bouncing back to +1.5% in 2010 • Growth to be dragged down by industrial drop (-12% YTY expected in Q1/09), then slowdown of consumption growth • Baseline GDP outlook is based on -3 % YTY in Germany • Consumption will barely grow this year (+0.9%) on two effects: (+) the substantial drop in inflation (oil prices, anti-inflationary economy) (-) quick rise in unemployment: from 5.4% in 2008 to 7.7% in 2009 • Total investment to decrease by close 4% on tighter credit, excess capacity, slowdown of construction. One thing that might help: EU funds • Government to significantly increase spending, implement fiscal stimulus package  deficit to rise to CZK 145 bn (3.7% GDP) Praha, 25 March 2009

  9. Expected macroeconomic developmentInflation to fall, rates to be near the bottom • Inflation expected to fall to 1.1% in 2009 • Driven by lower imported inflation (oil prices), slowdown of the economy (demand inflation to be negative) and lagged effects of strong currency in 2008. 2010 CPI to be above 2% (lagged effect of weak CZK) • Interest rates scenario – average 3M Pribor at 1.8% in 2009 • Interest rates already close to the bottom – at most one more 25 bps cut to 1.50% expected, then stable interest rates due to weak CZK. Rates at 1.75-2.00% at the year-end, with CZK skewing risks to earlier hike • Domestic inter-bank market stabilizing (risk premium fading away gradually) • Once situation stabilizes, CNB might be first tohike among CEE central banks • CZK development • CZK remain on the weakening path until situation abroad stabilizes • 2009 average of 27.4, 4Q/09: 25.1 CZK/EUR • Long-term trend - real convergence to continue once markets stabilize Praha, 25 March 2009

  10. Presentation topics • Czech macroeconomic environment • Czech economy to be hit only cyclically • What can be done to mitigate the impact? • Banking market • Banking market development • Performance of Ceska sporitelna • Best results in history • What can Ceska sporitelna do? Praha, 25 March 2009

  11. Banking market developmentHealthy banking sector • No state support has been needed or is currently envisaged • Limited exposure to subprime-related assets • Conservative banking model oriented on the domestic business, limited risk-taking • Low overall debt in the economy • Despite high credit growth in past 5 years (5Y average YTY growth rate of 15%) total loans represent only 53% of the GDP • Insignificant FX lending • FX loans represent 14% of total loans and 91% of it is covered by FX deposits • Banking sectors’ LTD ratio below 80% • Slight increase can be expected for coming years but still well below 100% (87% in 2010) • Banking assets growth continues but will slow down in 2009 • Asset volume grew by 61% since 2003 • Retail loans are the main driver • Lower growth in all segments expected in 2009 • Still high growth rates compared to Western standards • Inter-bank market gradually stabilizing Source: CNB, CS estimates Praha, 25 March 2009

  12. Presentation topics • Czech macroeconomic environment • Czech economy to be hit only cyclically • What can be done to mitigate the impact? • Banking market • Banking market development • Performance of Ceska sporitelna • Best results in history • What can Ceska sporitelna do? Praha, 25 March 2009

  13. Performance of Ceska sporitelnaBest results in history • Ceska sporitelna boosted its operating result despite deteriorating environment • Excellent operating profit based on strong business results supported by product innovations (CS Ideal Mortgage, CS Golden Deposit, CS Cool Card) • Double digit growth of fee income based on volume only (no increase of charged fees) • Total customer loans increased by 10% YTY, driven by mortgages and real estate loans, consumer and SME lending • Client deposit growth of 9% YTY supported further strong liquidity position of CS • Loan/deposit ratio only 71% • Strong performance of Ceska sporitelna was recognized by bank expertsand by the public in prestigious competitions • CS won a title The Bank of the Year 2008 in the Czech Republicin an international Bank of the Year competition organized by magazine The Banker • The public has voted CS the Most Trustworthy Bank of the Year for the fifth timein a row in the MasterCard Bank of the Year 2008 competition; CS Group took alsofirst place in other 2 categories of this competition: with its Cool Card as Loan of the Year and won also Life Insurance of the Year Award • Negative impact of financial crisis on CS‘s results from financial assets in the amount of CZK 3.4 bn Praha, 25 March 2009

  14. Presentation topics • Czech macroeconomic environment • Czech economy to be hit only cyclically • What can be done to mitigate the impact? • Banking market • Banking market development • Performance of Ceska sporitelna • Best results in history • What can Ceska sporitelna do? Praha, 25 March 2009

  15. EU Programme of CS • designed for entrepreneurs and companies operating in industry, services, agriculture and tourism • involves a complex of products and services covering all project stages: • Information • EU information database • EU News Monthly Journal (EU Office of ČS) • Suitable grant facility identification • Project plan consultation, applicant and project acceptability verification • Grant audit • Full project and grant application preparation • Including business plan, feasibility study • Appendices and paperwork consultation • Investment projects financing • Suitable financing structure design – short- and long-term financing combination tailored for the needs of particular project • Possibility to pay off the credit or a part of it after obtaining the grant • Respecting EU subsidized projects particularities: issuing standby credit, project phasing • Comprehensive offer of additional bank services • Grant retention • Project and grant management and monitoring • Tender preparation and management • designed for municipalities, regions and non-profit organizations • EU advisory services and assistance with project and application preparation are provided by a CS's subsidiary, Raven EU Advisory Praha, 25 March 2009

  16. Special Programme for CS‘s Customers • Support in preparation and implementation of innovative energy projects that are concerned with energy savings and the generation of energy from renewable sources • Programme is designed for: • SMEs • Public and non-profit organizations • Large corporations • Financing up to 80% of overall costs • Financing adjusted to fit the structure of subsidies • Combination with other special products (EIB programmes) possible • CS established Special Finance Unit – Energy Team, specialized in providing full package financing of Renewable energy projects: • photovoltaic power plant • wind parks • biogas/biomass power plant • small hydro power plant Praha, 25 March 2009

  17. Helping with External Supporting Programmes (national and EU) • CMZRB • CS is no. 1 in utilization of the Czech and Moravian Guarantee and Development Bank (CMZRB) – almost 50 % share • EUROPEAN INVESTMENT BANK - GLOBAL LOAN • CS is one of the best performing banks in CEE in terms of European Investment Bank's Global Loan channelling - more than EUR 200 million allocated to SME and municipalities • The Global loan is intended for the financing of small and medium scale projects mounted by public or private promoters, which are either a small and medium sized company, or where the investment targets one of the following sectors: environment, infrastructure, development of a knowledge-based economy, rational use of energy, health and education Praha, 25 March 2009

  18. Thank you for your attention Praha, 25 March 2009

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