August 2006 (22.8.2006) Martin Vozar

1. Capital MarketsOverview August 2006 (22.8.2006) Martin Vozar

2. Global Trends Commodities: • Crude oil: Crude oil prices have fallen sharply over the past week, bringing most markets down to three-week lows. Market sentiment has been positively affected by Lebanon’s cease-fire. • Gold: Gold rose for a second day on concern Iran may refuse to meet a looming United Nation’ deadline to halt uranium enrichment, boosting the precious metal’s allure as a haven.

3. Global Trends • Fixed income: • US: As expected, the FOMC held policy rates unchanged. • “The extent and timing of any additional firming that may be needed will depend on the evolution of the outlook for bothinflation and economic growth, as implied by incoming information." • Ben S. Bernanke • Japan: The BoJ held its key interest rate at 0.25% on 11 August the BoJ monetary policy meeting. • Europe:As expected, the ECB hiked its policy rate by 25 basis points, taking thelevel to 3%.

4. Dow Jones STOXX 50 3600 3500 3400 3300 3200 2.1.2006 3.1.2006 6.7.2006 7.5.2006 8.2.2006 1.18.2006 2.15.2006 3.15.2006 3.29.2006 4.12.2006 4.26.2006 5.10.2006 5.24.2006 6.21.2006 7.19.2006 8.16.2006 Dow Jones STOXX 50 15 per. Mov. Avg. (Dow Jones STOXX 50) Global Trends Stocks Markets: • US Equities: U.S. stocks rallied because falling housing markets and an unexpected drop in core wholesale prices and CPI core, that showed the Fed may have reason to believe inflation is under control. • Japan: Japan stocks raised as a U.S. inflation report eased concern the Fed will need to raise borrowing costs further. • Europe equities: European stocks dropped on speculation rising interest rates and slowing economic expansion will sap earnings growth.

5. US – Economy • Initial jobless claims for the week of August 12 declined to 312,000 froman upward revised 322,000 the week before (previous 319,000). • •Housing starts declined 2.5% to 1.795 million annualized units. Also,June and May starts were revised down a total of 24,000 units. • • The University of Michigan’s preliminary index declined more than forecast, to 78.7 from 84.7 in July. Confidence among U.S. consumers fell to the lowest level since October as Americans paid higher prices at the gasoline pump. • • The Philadelphia Fed business conditions index rose to 18.5 in August from 6.0 in the prior month (13.1 in Jun 06, the 2Q average 13.6, the 1Q average 10.3 and the 2005 average 12.4). • • The national US Homebuilders survey for August declined 7 points to 32(consensus 38), continuing the downward trend. All three components, (current sales,expected sales, and buyer traffic) were off sharply in August. Theseresults indicate that builders saw continued deterioration in demand overthe past month, despite a 25 basis point decline in conventional mortgagerates.

6. US – Economy • The headline CPI rose 0.4% in July (4.1%oya). A gasoline-led 2.9%jump in energy prices boosted the CPI; food prices were up a moremodest 0.2%.The core CPI rose 0.2% (0.194) in June, ending a four-month sequenceof 0.3% prints. The year-over-year rate was unchanged at 2.7%, thesix-month annualized rate was unchanged at 3.2%, and the three-monthannualized rate dropped to 3.2% from 3.6%. • The PPI core unexpectedly fell in July by 0.3%, the first decrease since October.

7. US – FX Market • The dollar yesterday slid the most against the euro in a month and also dropped versus the yen on concern the Fed’s two year cycle of interest-rate increases is slowing growth. • Potential for dollar appreciation is exaggerated from medium point of view after Bernanke said “the moderation in thegrowth of aggregate demand should help to limit inflation pressures overtime”. • The dollar is down 9,2% this year against the euro and 1,8% versus the yen on speculation central banks in Europe and Japan will raise rates more than the Fed. • Economists’ forecast for Q3 06, Q4 06, Q1 07 and Q2 07 are 1.30, 1.30, 1.32 and 1.32 (Reuters polls median).

8. Two-year T-bond yeld Reuters Poll Sep 06 Mar 07 Jun 07 Median 5,15 5,05 4,80 Max 5.50 5.70 5.95 Min 4,50 4,20 3,90 US – Fed funds rate • Fed leave’s its benchmark interest rates at 5.25% in August FOMC meeting. • Futures traders are pricing in a 47 % chance the FED will raise interest rates to 5,50 % by year end (down from 90% a week ago).

9. US – Money and Bond Markets

10. US - Yield Curve Changes

11. EU – Economy • The Euroarea GDP was reported to have grown at a 3.7%q/q pace, after a 2.5% pace in 1Q. In the 2Q, the strength was broadbased acrosscountries and sectors. • France and the Netherlands reported annualized gains of 4.7%q/q and 4% respectively. • The German data are close to 4%q/q, as activity was lifted by a weather related bounce in construction activity and by the boost to the service sector from the soccer World Cup.

12. EU – Economy • Euro area industrial production fell in June. IP drop in June by 0.1% and leave the second quarter as a whole up 3.6% YoY, after a gain of 4.1% in the first quarter. Overall growth in the second half of the year are near 3% or more. • TotalGerman IPis down 0.4%m/m in June, after a cumulative 2.7% increase in April-May(consensus: +0.3%). The moderate decline in June leavesthe level of IP in the 2Q up a strong 6.4%, after a1.4% in 1Q. • Euro area employment was growing at a 0.6% annualized pace. Negotiated wages moved up in 1Q to a 2.1% pace and picked up to a 2.5% pace in 2Q. • German ZEW plunged in August to 1.3 from July’s 18,1

13. EU – Economy • Euro area headline HICP inflation was revised down in July, from 2.5% YoY to 2.4%, after a 2.5% YoY reading in June. Energy prices were up 1.4%m/m in July, with a decline in the YoY rate from 11.0% to 9.5%. Food price inflation continued its upward trend, rising from 2.0% to 2.6% YoY. Core HICP (ex unprocessed food and energy) edged up a touch from 1.5% YoY to 1.6%. Core inflation will probably reach to 1.8% YoY by the end of this year.

14. ECB Refi Rates 3Q 06 4Q 06 1Q 07 Median 3.00 3.50 3.50 Max 3.00 3.50 3.75 Min 3.00 3.25 3.25 ECB • As expected, the ECB hiked rate by 25 basis points, taking thelevel to 3%. • “If our assumptions and base line scenario are confirmed, aprogressive withdrawal of monetary accommodation will be warranted.“ • Jean-Claude Trichet • The ECB came two months after the last hike,represents a step up in the pace of normalisation, from a move once aquarter to a move every two months.

15. EU – Bond Market

16. EU - Yield Curve Changes

17. US vs. EU Yield Curve Changes

18. Slovak MM and Fixed income • July CPI rose to 0.2 % from June low level 0.1%. The annual rate increased to 5.0 %, from June’s modest level 4.6%. July Core CPI rose to 2.8% from June 2.5% YoY. • Trade balance in June was better than month before, -6.7 mld. Sk from –7.8 mld. Sk • GDP 2Q 06 go up 6.6%, 1Q 06 6.3%

19. Slovak MM and Fixed income • Investors are expecting new proposal of the state budget for 2007 and fiscal priorities.

20. Slovak MM and Fixed income

21. CEE Central Banks from CEE region, interest rates: • SKK unchanged 4.5 % (new meeting 25.8.2006) • HUF changed6.75% (new meeting 28.8.2006) • PLN unchanged 4% (new meeting 29-30.8.2006) • CZK changed 2.25 % (new meeting 28.8.2006)

22. CEE Yield curves comparison

23. Credit Markets Overview

24. Credit trends • Moody’s Speculative Grade Default rate • The default rate edged down slightly to 1.7% in July from 1.8% in June, as only one US-based corporate default occured in July

25. Credit trends • Moody’s Speculative Grade Default rate • Moody's forecasting model for global speculative-grade default rate predicts that the default rate will finish 2006 at 2.1%, rising to 2.7% by the end of July 2007

26. Credit trends • Global credit markets have been relatively quiet over the last weeks with credit spreads trading in a narrow range - heavy supply is expected to return in September • Concerns: • increased shareholder focus combined with high M&A and private equity activity • Slowing growth+“sticky” inflation

27. Credit trends

28. Credit trends CDO spread change: No change in July, only a little change in August A tranches tightened

29. Investment portfolio managementContacts:Jan Pataky Head of Investment portfolio management (+421 2) 5850 5463 pataky.jan@slsp.sk Andrea Osuchova Portfolio Manager (+421 2) 5850 5392 osuchova.andrea@slsp.skLubomir Golany Portfolio Manager (+421 2) 5850 5412 golany.lubomir@slsp.sk Alena Teplicanova Quant Analyst (+421 2) 5850 5382 teplicanova.alena@slsp.skMartin Vozar Research (+421 2) 5850 5388 vozar.martin@slsp.skMichal Klestinec Research (+421 2) 5850 5403 klestinec.michal@slsp.sk

30. Disclaimer:This report is meant as supplementary economic information for our clients and is based on information available on the date of printing. Our analysis and conclusions are of a general nature and do not take into account the individual circumstances or needs of investors such as income potential, tax situation or the level of risk he or she is prepared to undertake. Information about previous performance does not guarantee future performance. Although we judge our sources to be reliable, we do not accept any responsibility for the completeness and accuracy of our information. This report is neither an offer to sell nor an offer to buy any securities. Erste Bank der oesterreichischen Sparkassen AG confirms that it has approved any investment advertisements contained in this material. Erste Bank der oesterreichischen Sparkassen AG is regulated by the Financial Securities Authority for the conduct of investment business in the UK.