Outline

1. Financial Sector Benchmarking SystemIdentifying Financial Sector Challenges and Monitoring ProgressJune 2012

2. Outline • About PFS • Overview of FSBS • FSBS Output • FSBS Analysis / Conclusions • Data Sources • Methodology • Your Feedback

3. Partners for Financial Stability Program • Promoting financial integration of E&E countries into the global economy. • Increasing the capacity of countries to mitigate as well as prevent financial crises. • Harmonizing policies and practices across the region with international standards in financial sector development. • Strengthening the institutional capacity of financial sector actors in E&E to effectively implement international standards and best practices. USAID’s regional Partners for Financial Stability (PFS) Program addresses financial sector challenges raised in the financial crisis while enhancing sector stability, growth and inclusion by:

4. Overview of Financial Sector Benchmarking System Developed by E&E Bureau’s Regional ‘Partners for Financial Stability Program’

5. Purpose of the Financial Sector Benchmarking System (FSBS) • To periodically measure progress and highlight vulnerabilities in the financial sector in Southeast Europe and Eurasia and in the individual countries. • To identify common weaknesses or challenges that can be addressed through regionalactivities (informing and ground-truthingPFS’s regional initiatives). • To provide useful data for USAID Missions in Europe and Eurasia to consider when planning and defining economic growthprograms andprojects.

6. FSBS Benchmarking Measures: • Financial and Macroeconomic Stability • Financial Sector Size • Financial Sector Sophistication • Access to Financial Services • Financial Sector Enabling Environment

7. FSBS Indicators Macroeconomic Stability • Inflation, average consumer prices in annual percent change • Fiscal Balance (as % of GDP) • Gross Debt (as % of GDP) • Current Account Balance (as % of GDP) • Gross Reserves (as % of GDP) • Remittances (as % of GDP) • Real GDP Growth Rate • GDP percapita • Government Domestic Debt (as % of GDP) • External Debt (as % of GDP) • Net Foreign Direct Investment (as % of GDP) • Unemployment rate (as % of total labor force) Financial Sector Size • Deposits (as % ofGDP) • Credit (as % of GDP) • Bank Capital (as % of GDP) • Stock Market Capitalization (as % of GDP) • Insurance Premiums (as % of GDP) • Financial Services (as % of GDP) Financial Sector Stability • Banks' Capital Adequacy Ratio • Banks' Non-Performing Loans/Total Loans • Bank Provisions to Nonperforming Loans • Banks' Return on Assets • Annual Growth of Credit • Annual Growth of Credit to Private Sector • Forex Loans (as % of Total Loans) • Forex Deposits (as % of Total Deposits) • AnnualGrowth of Deposits • Total Loans (except claims on government) to Total Deposits • Total Private Sector Loans to Total Deposits SophisticationofFinancial Services • Stock Market Capitalization (as % of GDP) • Stock Trading Volume (as % of GDP) • Bond Trading Volume (as % of GDP) • Insurance Premiums (as % of GDP) • Financial Market Sophistication • Total payment cards per capita • Number of payment card transactions per capita • Life Insurance Premiums (as % of GDP) • Non-Life Insurance Premiums (as % of GDP) • No. of Listed Companies

8. FSBS Indicators Access to Financial Services • Real Interest Rate Spread (percentage points) • Number of borrowers from commercial banks per 1,000,000 adults • Number of Commercial Bank Branches per 1,000,000 population • Number of ATMs per 1,000,000 population • Nominal Interest Rate Spread (percentage points) • Number of Commercial Bank Branches per 1,000 km2 • Number of ATMs per 1,000 km2 • Number of POS Machines per 1,000,000 population • Access to Credit Index (Rank DBIs) • Financial Affordability Financial Sector Enabling Environment • Registering Property - Cost (as % of property value per capita) • Registering Property - Procedures (number) • Registering Property - Time (days) • Enforcing Contracts - Cost (as % of debt) • Enforcing Contracts - Procedures (number) • Enforcing Contracts - Time (days) • Public Registry Coverage & Private Bureau Coverage (as % of Adults) • Irregular Payments and Bribes • GettingCredit - Rank • Protecting Investors - Rank • Strength of Auditing and Reporting Standards • Diversionof Public Funds • PublicTrust of Politicians • JudicialIndependence • Favoritism in Dictions of Government Officials Total 64 indicators

9. Country – Regional – Global Comparisons Global Benchmark: Eurozone or Korea Plus Egypt

10. FSBS Publications– 28 reports so far ‘Most downloaded’ documents on the PFS website February 2012 October 2011 June 2011

11. FSBS Output

12. FSBS Spider Charts: Bigger is Better

13. FSBS Spider Charts

14. FSBS Spider Charts

15. FSBS Time series graphs

16. FSBS Time series graphs

17. FSBS Regional Bar Graphs

18. FSBS Regional Bar Graphs

19. Heat maps Overall Vulnerability

20. Heat maps Current Account Balance

21. Heat maps PFS Remittances Vulnerability Index

22. Country Scores and Rankings

23. Periodic Regional and Country Reports • Albania High Level Financial Sector Overview, October 2011 http://www.pfsprogram.com/albania-high-level-financial-sector-overview-october-2011 • Regional Benchmarking Report,October 2011 http://www.pfsprogram.com/regional-financial-sector-benchmarking-report-october-2011 • Regional Comparison and Financial Sector Overviews for 12 Countries in Southeast Europe and Eurasia,February 2012 http://www.pfsprogram.com/regional-comparison-and-financial-sector-overviews-12-countries-southeast-europe-and-eurasia

24. PFS InteractiveWebsite www.pfsprogram.org

25. PFS Website – Dynamic Spider Charts DEMO: http://www.pfsprogram.org/benchmarking-database

26. PFS Website –Dynamic Bar Charts

27. PFS Website – Dynamic Line Charts

28. PFS Website –Dynamic Tables

29. Regional Analysis & Conclusions

30. Regional Analysis & Conclusions

31. Regional Analysis & Conclusions Banks have alarming levels of bad loans across SEE and Eurasia

32. Regional Analysis & Conclusions Starved for credit: Azerbaijan, Armenia, Georgia, Kosovo

33. Regional Analysis & Conclusions– NPL in Ukraine High level of NPL in Ukraine

34. Regional Analysis & Conclusions– Loans to Deposit Ratio in Albania Banks very liquid in Albania

35. Regional Analysis & Conclusions– FX Loans in Serbia High level of FX Loans in Serbia

36. Data Sources

37. Publicly available data • Primary: • IMF – Primary source • International Financial Statistics • Financial Access Survey • World Bank – Doing BusinessIndicators • WEF – The Global Competitiveness Report • Swiss Re – Sigma Study • Secondary: • Stock Exchanges • Central Banks • EBRD • PFS Surveys

38. Methodology

39. Complete Scoring Proccess 1 3 2 5 3 4

40. Scoring Types • Higher is better • Lower is better • Bell curve range • Methodology report: http://www.pfsprogram.com/benchmarking-methodology-nov-2011

41. Your Feedback How to best publicize and refine FSBS?

42. Other PFS Publications www.pfsprogram.org • Emerging Europe’s Big Banks: Yesterday’s Growth Engine, Today’s Challenge (2012) • Taming the Beast: High Levels of Lending in Foreign Currency in Southeast Europe and Eurasia (2012) • The Global Financial Crisis and the Impact on the Financial Sectors in Southeast Europe and Eurasia: Financial Stability, Vulnerabilities, and Lessons Learned (2011) • Capital Markets in Southeast Europe and Eurasia: A Future in Question: The Impact of the Global Financial Crisis and the Need for Engagement (2011) • High Levels of Problem Loans in Southeast Europe and Eurasia: The Silent Killer of Economic Growth (2011) Partners for Financial Stability (PFS) 1919 N. Lynn Street Arlington. VA 22209 Phone: +1 571 882 5000 Fax: +1 571 882 5100 www.pfsprogram.org

43. The United States Agency for International Development (USAID) provides economic and humanitarian assistance in more than 100 countries to provide a better future for all. USAID is an independent federal government agency that receives overall foreign policy guidance from the U.S. Secretary of State. Its work supports long-term and equitable economic growth and advances U.S. foreign policy objectives by supporting: economic growth, agriculture and trade; global health and democracy; conflict prevention; and humanitarian assistance. With headquarters in Washington, DC, USAID's strength is its field offices around the world. It works in close partnership with American business, indigenous organizations, international agencies, other governments, other U.S. government agencies, private voluntary organizations and universities. USAID has working relationships with more than 3,500 American companies and over 300 U.S. based private voluntary organizations. For more information, please visit http://www.usaid.gov • Contacts: • David Cowles • COTR • USAID • +1 202 567 4056 • dcowles@usaid.gov • Leslie Sulenta • Chief of Party • Deloitte Consulting LLP • +385 98 355 258 • lsulenta@deloitte.com • Daliborka Matanovic • Research Assistant - Benchmarking • Deloitte - Croatia • + 385 (0)91 2544 452 • dmatanovic@deloittece.com About Deloitte’s Emerging Markets Practice Deloitte’s global team has decades of experience providing strategic guidance to donors and other international organizations working in transitional markets in over 60 countries around the world. Deloitte professionals have the background of serving a wide variety of clients and implementing hundreds of projects in some of the most challenging environments. We draw from an extensive network of highly experienced professionals to provide each client with the right team. Our team takes on the challenges of poverty and economic development by providing assistance to countries in public finance, public sector management, health and social protection, information technology, financial sector strengthening and private sector development.