Banco Internacional (BITAL)

1. Banco Internacional (BITAL) Mauricio Almagro Darika Amornvatana Larry Hou Shilpa Lulkarni Juan Carlos Mier y Teran February 26, 1999

2. Agenda • Grupo BITAL • Risk Analysis • Valuation before the Crisis • Questions and Discussions • Post Crisis Valuation • Epilogue

3. Mexican Banking System • Changes in the industry • Nationalization • Consolidation • Re-privatization • Regulatory practices • Conglomerates • Foreign investment • Loans growth • Credit analysis • Funding

4. BITAL • Group • Grupo Prime • Banco Internacional • Integrated Financial Services • Distribution channels • Subsidiaries • Strategy • Market coverage (growth) • Segments • New image

5. BITAL before the Crisis

6. The Crisis • Before • Exchange rate control • Capital inflows • Reserves • Political events • After • Devaluation • Investor confidence (local, foreign) • High interest rates

7. Agenda • Grupo BITAL • Risk Analysis • Valuation before the Crisis • Questions and Discussions • Post Crisis Valuation • Epilogue

8. Risk Analysis Country Risk • Currency devaluation & economic forecasts. • Income inequality • Social insecurity • Political Stability

9. Risk Analysis Business Risk • Openness in the industry • Quality of loan portfolio • Non-performing loans

10. Agenda • Grupo BITAL • Risk Analysis • Valuation before the Crisis • Questions and Discussions • Post Crisis Valuation • Epilogue

11. Pre Crisis Valuation • Interest Income • 20% growth in the first 3 years, • 15% growth 4-6 years • 10% growth 7-10 years. • Interest Expenses • 65% of interest income • Personal Expenses • 2% of total assets • Recruiting of more educated personnel.

12. Pre Crisis Valuation • Administrative & Operational Expenses • 1.5% of total assets • Increased due to expansion plans. • Loan Portfolio • 20% growth in the first 3 years, • 15% growth 4-6 years • 10% growth 7-10 years. • Terminal Growth • 10% growth (assuming 7% inflation rate)

13. Pre Crisis Valuation • Cost of Equity 36.5% • ICCRC 46.1 • Cost of Debt 15.3% • Average Inter-bank interest rate in 1994 • D/V 41% • WACC 27.7% Value of BITAL N$17.90 per share.

14. Agenda • Grupo BITAL • Risk Analysis • Valuation before the Crisis • Questions and Discussions • Post Crisis Valuation • Epilogue

15. Discussion

16. Agenda • Grupo BITAL • Risk Analysis • Valuation before the Crisis • Questions and Discussions • Post Crisis Valuation • Epilogue

17. Post Crisis Valuation • Interest Income • -10% growth in the first year, • -5% growth in 2nd year. • 10% growth in 3-4 years • 15% growth 5-7 years. • 10% growth in 8-10 years • Interest Expenses • 65% of interest income • Personal Expenses • 1.6% of total assets

18. Post Crisis Valuation • Administrative & Operational Expenses • 1.4% of total assets • Loan Portfolio • 5% growth in the first 2 years, • 10% growth 3-5 years • 15% growth 6-10 years. • Terminal Growth • 10% growth (assuming 7% inflation rate) • Write-offs (as a % of past-due loans) • 20% in first 2 years • 15% in years 3-4 • 10% in years 5-7 • 4% in years 8-10

19. Post Crisis Valuation • Cost of Equity 59.71% to 32.89% • ICCRC 41.8 to 46.9 • Cost of Debt 36.7% to 12% • Average Inter-bank interest rate • D/V 34% • WACC 54% to 27% Value of BITAL N$9.63 per share. 46% decrease

20. Post Crisis Valuation 30% drop

21. Agenda • Grupo BITAL • Risk Analysis • Valuation before the Crisis • Questions and Discussions • Post Crisis Valuation • Epilogue

22. What Happened Next? • BITAL restructured its loan portfolio • Completed capitalization program in 1996 • Rapid expansion of branch network • Ranked the fourth largest bank after the recent merger