Outlook for development of the financial and capital markets in Ukraine

1. Outlook for development of the financial and capital markets in Ukraine Prepared by Valeriy GontarevChairman of the Board of Directors of the group of companiesICU (“Investment Capital Ukraine”) June 17, 2010. Kiev, hotel Intercontinental

2. Europeanfinancial crisis

3. The nature of crisis in the Eurozone Germany Greece Italy Ireland Spain Portugal dec-05 mar-06 jun-06 sep-06 dec-06 mar-07 jun-07 sep-07 dec-07 mar-08 jun-08 sep-08 dec-08 mar-09 jun-09 sep-09 dec-09 mar-10 jun-10 Source: Reuters, the Investment Capital Ukraine • Источник: Reuters, «Инвестиционный Капитал Украина» • Profitability of 10 year sovereign bonds • “All as one”, this is how investors estimated the risk of debt instruments of the Eurozone countries before the crisis • Now “all are different”, but the EUR currency remains “one for all”…

4. Overall common budget deficit of the EC countries % of GDP Greece Ireland Spain Italy Portugal Germany Eurozone (6 countries) Source: Eurostat • According to the Maastricht criteria, the budget deficit must not exceed 3% of GDP • However, not once have a number of countries in the Eurozone violated this requirement • State budget deficit (% of GDP) • Источник: Eurostat

5. Excessive debt load in somecountries of the Eurozone % of GDP Greece Ireland Spain Italy Portugal Germany Eurozone (6 countries) Source: Eurostat • “Life beyond their means” -- before the 2008-09 global crisisthe markets allowed some countries to live on credit (often foreign one) • The decrease in budget deficits and, correspondingly, in debt load is the basic thesis of economic policy • The consolidated state debt by the end of the period (% of GDP) • Источник: Eurostat.

6. The reason for weakening of EUR is the flight of capital out of the Eurozone Exchange rate of USD against EUR CDS for 5 year sovereign debts of “problem” countries in Europe Источник: Bloomberg Источник: Bloomberg Greece Ireland Spain Italy Portugal dec-05 mar-06 jun-06 oct-09 nov-09 dec-09 jan-10 feb-10 mar-10 apr-10 may-10 jun-10 jan-09 mar-09 may-09 jul - 09 sep-09 nov-09 jan-10 mar-10 may-10 Source: Bloomberg Source: Bloomberg

7. The main current problems of the Eurozone: debt, growth of GDP and deflation The actual GDP growth rate (%) The consumer prices inflation rate (%) Источник: МВФ, World Economic Outlook Источник: МВФ, World Economic Outlook Ireland Greece Ireland Greece Italy Spain Italy Spain Portugal Germany Portugal Germany Eurozone (6 countries) Eurozone (6 countries) Outlook Outlook Source: IMF, World Economic Outlook Source: IMF, World Economic Outlook

8. The deficit/proficit of the current account of the EC countries payment balance The fundamental problem is that the countries suffering from debt problems are not capable of competing with their products in the foreign markets, which is why they constantly have deficits of their trade balances Источник: OECD Greece Ireland Italy Spain Portugal Germany Eurozone (6 countries) % of GDP Source: OECD

9. Macro economic situation in Ukraine

10. Ukraine: the budget deficit and state debt State debt of Ukraine, % GDP Источник: Министерство финансов Украины, отчет Кабинетаминистров Украины Источник: Министерство финансов Украины Deficit: official and covert Overall debt Internal debt External debt The state budget deficit, official data, % GDP % of GDP % of GDP The state budget deficit, including covert deficit, % GDP jul - 04 mar-05 nov-05 jul - 06 mar-07 nov-07 jul - 08 mar-09 nov-09 Source: the Ministry of Finance of Ukraine Source: the Ministry of Finance of Ukraine, the Cabinet of Ministers report

11. Ukraine: the GDP growth and inflation rates The yearly inflation rate, % Источник: Комитет статистики Украины Источник: Комитет статистики Украины The yearly actual GDP growth rate, % jan-00 jan-02 jan-04 jan-06 jan-08 Jan-10 Source: The State Statistics Committee of Ukraine Source: The State Statistics Committee of Ukraine

12. The payment balance of Ukraine The payment balance is gradually leveling off after the crisis decline to negative values Источник: НБУ Current operations account balance Current operations account balance Balance of payments Source: The National Bank of Ukraine

13. The merchandise trade balance and financial account of Ukraine Foreign merchandise trade The capital transactions account balance and financial account balance Источник: НБУ Источник: НБУ Capital transactions account (Ihs) Export (Ihs) Other capital (Ihs) Import (Ihs) Portfolio investments (share capital) (Ihs) billion, USD Loans and bonds (balance) (Ihs) Direct Investments (balance) (Ihs) billion, USD jan-09 jan-08 mar-08 jul -08 sep-08 nov-08 mar-09 may-09 jul -09 sep-09 nov-09 jan-10 mar-10 may-08 jan-09 jan-08 mar-08 jul -08 sep-08 nov-08 mar-09 may-09 jul -09 sep-09 nov-09 jan-10 mar-10 may-08 Source: The National Bank of Ukraine Source: The National Bank of Ukraine

14. The nominal exchange rate of UAH against USD and UAH real effective exchange rate • The devaluation in October 2008 resulted in the sharp REER index decrease, which means that Ukrainian goods have become more competitive in comparison with their main trade partners • This facilitates a gradual trade balance recovery that is a crucial pre-requisite of financial stability The REER index (real effective exchange rate of UAH against the basket of currencies) The nominal exchange rate of UAH against USD (rhs) jan-04 dec-04 nov-05 oct-06 oct-07 aug-08 jul -09

15. future: outlook and required reforms

16. The outlook for 2H 2010: quieter market for shares, the hot ticket is VAT bonds nov-98 jun-99 jan-00 aug-00 mar-01 oct-01 may-02 dec-02 jul -03 feb-04 sep-04 apr-05 nov -05 jun-06 jan-07 aug-07 mar -08 oct-08 may-09 dec-09 • * The real growth rate is a change of the PFTS share market index, inflation factored in. Source: PFTS, Investment Capital Ukraine • The real PFTS index increased by nearly 300% in the period of March 2009 – April 2010. Its correction is still going on, but the volatility is notably decreasing, so a quieter market for shares is expected in 2H 2010. • Now approximately UAH 5 billion are expected to be invested in the new assets that is VAT bonds. The expected profitability is 22-23%. • The movement on the market for corporate bonds of Ukrainian issuers can be expected only by the end of 2010. • Реальный* темп прироста рынка акций Украины

17. The required reforms • Effective procedures of borrowers’ bankruptcies in case they refuse or cannot repay their debt; • Refining of the system and procedures for information disclosure when issuing securities and during their circulation; • The pension reform completion and encouraging Joint Investment Institutions to form a pool of internal institutional investors; • Enforcing of effective monetary and fiscal policy as to decrease the value of securities in national currency and to stimulate their issue; • Liberalisation of an outdated currency regulation • Elimination of tax preferences between different instruments of safekeeping and accumulation of savings (which means no tax on bank deposits earnings)