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The FICCI Banking Conference

The FICCI Banking Conference. 7 October 2005. Domestic Consolidation in the Banking Sector. Banking Consolidation… … A Key Theme Across Developing Economies in Asia. Bank Density in Asia Pacific No. of Local Commercial Banks (1997 vs Present) (1). (2). (3). (4).

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The FICCI Banking Conference

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  1. The FICCI Banking Conference 7 October 2005 Domestic Consolidation in the Banking Sector

  2. Banking Consolidation… … A Key Theme Across Developing Economies in Asia Bank Density in Asia Pacific No. of Local Commercial Banks (1997 vs Present)(1) (2) (3) (4) Source Central bank statistics 1 • Notes • Excludes foreign banks and foreign bank subsidiaries; Data for Hong Kong includes HSBC (and Hang Seng separately) and Standard Chartered • No. of domestic banking groups • Excludes regional rural banks and foreign subsidiaries • Figure is obtained after categorizing SinoPac and IBT, Shinkong and Macoto Bank, Chiao Tung and ICBC as one operating entity

  3. Leading to Increased Market Share of Top Players Top Five Player’s Asset Market Share % (1) (2) (3) (4) (5) (6) Source Central bank statistics, newsruns 2 • Notes • Total assets of top 5 banking groups / banks as a % of total assets of nationwide and regional bank assets • Market share calculated as total assets of 3 domestic banking groups as % of total assets of commercial banks in Singapore (Source: MAS); 1997 individual bank data is based on Bloomberg. • 1998 data estimated from research reports • Excludes regional rural banks and includes total assets of foreign subsidiaries • Market share for Malaysia as of 1999; Hong Kong and Korea as of 1998 • Present Market Share calculated on the basis of total asset value disclosed in the most recent available company filings and aggregate value based on central bank statistics release: Korea (Sep 2004), Australia (Dec 2004), Hong Kong (Jun 2005), Indonesia (Dec 2004), Singapore (Dec 2004), Thailand (Mar 2005), Malaysia (Dec 2004), India (Mar 2004), Taiwan (Mar 2005)

  4. Korean Banking Sector Consolidation Comparison of Korean Banking Sector Pre and Post Consolidation Source FactSet Source FactSet 3 • Note • Market Value as of September 27, 2005 • Book value as of 1Q2005

  5. Malaysian Banking Sector Consolidation Comparison of Malaysian Banking Sector Pre and Post Consolidation Malaysian Banking Sector Consolidation Source Factset and Broker’s research report Source Factset and Broker’s research report 4 • Notes • Maybank’s equity value is the market capitalization 1999, and other banks’ equity values presented are their book value of equity • Market data as of September 27, 2005

  6. Revenue Synergies Key Consolidation Drivers Competitive / Defensive Moves Cost Synergies • Inevitable strategic move • Market maturity • Growth prospect • Increasing importance and cost of technology/savings achievable through economies of scale/off-shoring • IT savings • Combining HQs/back office activities • Fixed costs • Disposal of outsourcing/non-core activities • Brand recognition • Marketing costs • Reduced risk from diversification • Selling new products to an existing customer base and existing products to a new customer base • Larger size and capital base allows to finance growth/technology/make strategic move Ensuing Results • Scale (cost efficiencies) and better pricing and risk management • Universal banking model • More M&A activity in asset management and insurance sectors • Adoption of international standards • Foreign ownership forcing improvements in corporate governance • Higher accounting and ethical standards 5

  7. Synergies in Precedent Transactions Selected U.S. In-Market Bank Transactions Expressed as a % of Target’s Cost Base (%) Average: 43% Median: 42% Asian & European In-Market Mergers Expressed as a % of Target’s Cost Base (%) Average: 37% Median: 36% 6

  8. Fragmented Industry Structure in India Industry (1) Breakdown by Total Assets 120 60 Asset Size >US$10Bn US$1–10Bn US$100MM–1Bn # of banks 14 31 9 Source Company filings 7 • Note • Excludes regional rural banks and subsidiaries of foreign banks

  9. Top in World Ranked GDP …. … Banking Industry Lacking Behind in Scale Global GDP – Top 20 US$Bn Average Market Capitalization of Top 3 Players (1) US$Bn (2) Europe, USA, and Japan Asia-Pacific Ex-Japan Source World Bank Source Factset as of 27 September 2005 8 • Notes • Ranked by Market Capitalization • Includes only the top 2 players UBS and CSFB

  10. How to Prepare for Domestic Consolidation? Emerging as a Winner Focus on Core Competencies to Enhance Returns Competitive Advantage through Scale Virtuous Cycle: Scale  Enhanced Operating Results  Greater Ability to Effect Acquisitions Be Proactive: Continual Assessment of Options 9

  11. The FICCI Banking Conference 7 October 2005 Domestic Consolidation in the Banking Sector

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