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

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 Groupcan leverage on diversification, a strong regional network and newly raised capital to strengthen and optimize its positioning in the market

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

Signs of recovery: still 2010 implies growth below potential and countries confirm to be very different Real GDP growth (%) Country Rank 1 2 3 4 5 Low macro vulnerability High macro vulnerability Russia Baltics PL CZ SK Ukraine KZ HU SI RO HR BH BG Turkey 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 Consumption (real % growth) Investments (real % growth) Source: UniCredit Group CEE Research

3,274 Out of a “liquidity-crisis mood”, but funding availability and cost remain a constraint for CEE banking Banking sector external liabilities (% on total liabilities, June 2009) CEE external liabilities(1) € bn Country Risk Premium 5Y CDS (USD, bp) 1,168 (1) CEE-17 Source: UniCredit Group CEE Strategic Analysis

Banks are rebalancing the loans/deposits gap Total banking system deposits(1) (June 09 vs Dec 08 % change FX adj) Loan-to-deposits ratio (banking system level, %) Total banking system Loans(1) (June 09 vs Dec 08 % change FX adj) 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) • 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 • Source: UniCredit Group CEE Strategic Analysis, local CBs

The long term potential of the CEE region is intact Financial deepening process (% of GDP and PPS in dollar terms) Real income convergence in CEE (1) Western Europe Total banking assets CEE 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 (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

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 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 CEE banking - the medium-term scenario implies new constraints and new competitive advantages KEY CONSTRAINTS KEY COMPETITIVE ADVANTAGES

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 CEE1 to gradually increase over time Our forecast (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) • Cost savings programmes coming into the spotlight • 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 (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) Cost of Risk (provisions(3) in % Ø gross loans)(2) (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 Size of banking profits of each period Source: UniCredit Group CEE Strategic Analysis

25 UniCredit Group is the largest player in CEE, well diversified, with 12% of group assets in the region DATA AS OF 2008 Number of Branches Total Assets(1) EUR bn Countries of presence(3) CEE, % share in Group Assets Net Profit(2) EUR mn UniCredit 53% 121.6 2,577 4,005 19 12 Raiffeisen 2051% 85.4 3,231 1,078 16 54 157% Erste 79.3 1,569 2,099 7 39 112% (4) KBC 71.6 309 1,940 12 20 SocGen 41% (5) 65.9 2,609 1,201 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) 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 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) Raiffeisen UCG Erste KBC SoGen Intesa OTP Intl Assets in CEE, % 12 54 39 20 6 7 100 of Group Assets Group T1 Ratio(4), % 8.5 8.9 8.1 10.8 9.9 8.1 12 CEE Loans(5)/ 118 127 95 98 96 118 129 Deposits, % CEE GAP(6), % 1.5 10.1 3.8 1.4 0.5 1.1 14.2 Group Assets Group CDS 81 248 128 157 84 47 - (current), bps CEE Cost of Risk, ~ 200 > 300 ~ 200 n.a. n.a. ~ 200(7) > 300 bps 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 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) high Czech R. Russia Turkey Poland ~56% of UCG CEE Revenues Slovakia Slovenia Romania Serbia Economy/banking growth potential vs. Risk environment ~79% of UCG CEE Revenues Hungary Bulgaria Croatia Kazakhstan Bosnia-H. Ukraine Weight in total UCG CEE Revenues (full year 2008&H1 2009 quarterly average) Baltics low high low UCG Banks positioning 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) 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

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