Condominiums Polish b anking e xperience by Bank DnB NORD Polska S.A.

1. CondominiumsPolish banking experienceby Bank DnB NORD Polska S.A. KyivJune 30, 2011

2. 1 Condominiums’ Porfolio Is this an opportunity or risk? • Clients • 5900 credit clients • Transactions • 7000 credit transactions: • 3700 thermo-modernization investment loans • (with subsidy from Thermo Fund managed by • state owned Bank Gospodarstwa Krajowego) • 3300 regular investment loans • Quality • 0 defaults • 0 refusals to pay out a subsidy

3. Condominiums 1 Condominiums’ needs • attractive short term deposits • reputation and brand awareness of bank • low costs of account maintenance and low interest • „New” condominiums (buildings after 1990) • accessibility to products and services viaInternet • „Old” condominiums (buildings up to 1990) • cash service • investment needs and credit consultancy: Condominiums Lending market Source: The Gdańsk Institute for Market Economics on the basis of Central Statistical Office; Infrastructure Ministry 2009 low quality and poor standard of properties builtin years 1945-1990 renovation or upgrade standard of property need Loans can be subsided by BGK* up to 20% of total credit limit Majority of investments based on bank loans *State owned Bank Gospodarstwa Krajowego

4. Condominiums 1 C Condominiums in DnB Nord Polska • Condominiums are part of the Small and Medium Enterprises segment. • DnB NORD Polska is oneof Top3 Banks for Condominiumsin Poland: • Leader on the market with10 years of experience • Considerable market share • 99% of portfolio – „Old” condominiums • 26 specialised Condominium Relationship Managers and dedicated team in HQ • Target group: • Large condominiums (lower risk profile) • Condominium acquisition via property managers • Market: • 130 000 Housing • Condominiums • (lending:100 000) • DnB NORD Polska market share: • 26% in lending

5. 1 Condominiums – major risks and mitigators • RISKS • MITIGATORS • Credit risk • Too low flows in the dedicated renovation account • The dedicated account in our Bank is a must • Flows are strictly monitored (increase of margin or termination in case of breach of this covenant) • Operational risk • Risk connected with the correctness of condominium’s resolutions • Pre-defined templates required by the Bank • Resolution’s generator prepared in-house

6. 1 Condominiums – what we verify • Documents • Verification of documents provided by a client, i.e. completeness, up-to-date, authenticity, formally in accordance with Bank’s requirements • Cash Flows • Cash Flows via a dedicated bank account (called renovation account) especially taking into consideration collection rate • Knock outs • Identification of absolute rejection criteria In-house made IT Tool supports process

7. 1 Condominiums – what we verify • Client’s application • Check list • Correctness of resolutions regarding: • Approval of financial statements for previous year incl. a financial statement • Performance approval of a condominium’s board for the previous year • Approval of a financial forecast for the current/coming year • Election/change of a board • Renovation charge (amount)/m² • Loan, incl.: • Source of repayment and collateral • Power of attorney to condominium’s account • Statement that there will be no other proxies to the account • Statement that the account will not be closed • Power of attorney to the Condominium’s Board to sign credit agreement and to establish collaterals • Documents

8. 1 Condominiums – what we verify • Cash Flows • Renovation charge given in a client’s application vs. formal resolution • Amount of cash collected on a renovation account • Collection rate given in a client’s application vs. real cash flows via a renovation account • Own share • Knock outs • General rule: meeting 1 rejection criteria ends the credit process • Any crucial condominium’s resolution contested at court • Any crucial resolution is conditional or in a variant mode • Execution proceedings towards condominium during 6 months before submitting an application • Condominium is registered in bad clients’ databases • Board member or proxy is using restricted (stolen) ID • Bad monitoring track record • Overdue liabilities towards the Bank • Client moved to Restructuring & Vindication Dept. • Default

9. 1 Condominiums – credit worthiness analysis and disbursement • Credit worthiness • Verification of real cash flows via renovation account (6 months) incl. inhabitants’ payments and other income (e.g. lease) • DSCR corrected by an average collection rate is calculated and it takes into account: • Size of a building (the bigger building the lower DSCR is acceptable) • Amount of renovation charge/m² (the higher charge the higher DSCR is required) • Repayment schedule (equal principal instalments or annuity) • Conclusion: small condominium with high renovation charges/m² must have bigger buffer • In case of thermo-modernization loans credit worthiness is calculated taking into consideration amount of a loan decreased by a future subsidy • Disbursement • Proportional disbursement is allowed

10. 1 Condominiums – collateral and monitoring • Collateral • Obligatory: • Power of attorney to a renovation account • Assignment of rights from insurance in case of: • Own share is lower than 20% • Building is made of pre-fabricated concrete blocks • Voluntary: • Cash deposit • Monitoring • Portfolio approach in case of small exposures • Quarterly/annual case-by-case check for significant exposures, i.e.: • Due obligations towards bank • Cash flows via account (turnover covenant) • Annual resolutions delivery and verification

11. 1 Condominiums – supporting IT Tools • Excel based • Work-flow tool (WEB-based)

12. 1 Condominiums – lesson learned • very stable through the crisis • stabilizing bank’s profitability • effective if processed in line with lean methodology • very often self-financed portfolio • x-sale potential for universal or retail bank with large network • easy from risk perspective • no credit losses if done properly • no big investments needed BUT • market is relatively small and specialized so you have to be the first and the best • it is relation based business and word of mouth marketing

13. 1 Condominiums Is this an opportunity?