Czech & Slovak Republics Jaromír Sladkovský Director of Group Retail Marketing Prague April 19, 2004 Dynamics of Banking Sector

2 Czech Republic Slovakia International Comparison

3 Banking Sector in CR Bank Deposits & Retail Savings Bank Loans & Retail Lending Sector Profitability

4 MUTUAL FUNDS BUILDING SAVINGS SHIFT FROM BANK DEPOSITS TO MUTUAL FUNDS WILL CONTINUE DUE TO LOW INTEREST RATE ENVIRONMENT Source: Czech National Bank (CNB) Flat Exchange rate used as of Dec 31, 2003 COMPANIES HOUSEHOLDS OTHERS EUR billion (CAS) BANK DEPOSITS PRIVATE FINANCIAL ASSETS* BANK DEPOSITS 44,544,5 48,5 56,6 58,8 29,1 32,7 35,0 38,5 In the medium term: Total bank deposits are expected to grow at 4-6% Corporations should be major contributor to total deposit growth Household deposits should show stable growth at 2-4% despite low interest rate environment In the medium term: Total bank deposits are expected to grow at 4-6% Corporations should be major contributor to total deposit growth Household deposits should show stable growth at 2-4% despite low interest rate environment Total household savings are expected to grow by 6-8%, i.e. 2-3% above nominal wages Current shift from bank deposits to mutual funds will continue Rapid growth of building savings should slow down due to lower government subsidy from 2004 Total household savings are expected to grow by 6-8%, i.e. 2-3% above nominal wages Current shift from bank deposits to mutual funds will continue Rapid growth of building savings should slow down due to lower government subsidy from 2004 *) without pension funds and life insurance reserves

5 LOANS PROVIDED TO INDIVIDUALS WILL REMAIN A KEY GROWING DRIVER OF TOTAL LOANS IN THE FUTURE COMPANIES HOUSEHOLDS OTHERS PRIVATE FINANCIAL LIABILITIES BANK LOANS OTHER LOANS* BUILDING LOANS MORTGAGES CONSUMER LOANS *) includes overdrafts, FX loans, investment loans etc. 34,0 30,8 29,0 30,8 2,9 3,6 4,9 6,5 Source: Czech National Bank (CNB) Flat Exchange rate used as of Dec 31, 2003 EUR billion (CAS) In the medium term: Total loans are expected to grow on average at 6-8% a year Loans provided to households will remain a key growing driver of total loans (about 20% a year) Loans provided to corporations and SME should show a reverse trend In the medium term: Total loans are expected to grow on average at 6-8% a year Loans provided to households will remain a key growing driver of total loans (about 20% a year) Loans provided to corporations and SME should show a reverse trend Mortgages will keep its high growth at 20-30% a year Building loans should keep its high growth as well We expect the growth of consumer loans to slow down (recent evidence) Mortgages will keep its high growth at 20-30% a year Building loans should keep its high growth as well We expect the growth of consumer loans to slow down (recent evidence)

6 Source: CNB Net interest income Net fee income DESPITE THE DROP IN INTEREST RATES, THE BANKING SECTOR MAINTAINED SOLID PROFITABILITY LEVEL Profitability of the banking sector was driven by several factors: stable interest income, growing fee income, better quality of credit portfolio and cost management Net fee income showed double digit growth over the past three years Banks increasingly focused on cost management (e.g. total bank staff decreased from 44k in 2000 to 39k in 2003) Profitability of the banking sector was driven by several factors: stable interest income, growing fee income, better quality of credit portfolio and cost management Net fee income showed double digit growth over the past three years Banks increasingly focused on cost management (e.g. total bank staff decreased from 44k in 2000 to 39k in 2003) Net profit Operating Income* EUR million (CAS) *) Other income includes income from financial operations (FX, derivatives, securities etc.) Excludes Other Expenses and Other Income

7 Banking Sector in SR Bank Deposits & Retail Savings Bank Loans & Retail Lending Sector Profitability

8 MUTUAL FUNDS BUILDING SAVINGS RECENT FISCAL REFORMS MAY IMPACT THE GROWTH OF DEPOSITS (AND ITS STRUCTURE) IN SLOVAKIA Source: National Bank of Slovakia (NBS) Flat Exchange rate used as of Dec 31, 2003 COMPANIES HOUSEHOLDS OTHERS 16,5 19,4 14,8 18,7 BANK DEPOSITS PRIVATE FINANCIAL ASSETS* BANK DEPOSITS 8,9 9,79,9 10,1 EUR billion (SAS) In medium term: Total bank deposits are expected to grow at 3-5% on average a year Household deposits are likely to remain stable (maximum 1-2% growth a year can be expected) In medium term: Total bank deposits are expected to grow at 3-5% on average a year Household deposits are likely to remain stable (maximum 1-2% growth a year can be expected) Total household savings will likely grow by 2-4% a year due to slow growth of real wages in SR Current shift from term deposits to mutual funds will continue with decreasing interest rates Building deposits stay flat (this product never reached the same level of attractiveness as in CR) Pension funds are expected to be a key driver of growth after 2004 Total household savings will likely grow by 2-4% a year due to slow growth of real wages in SR Current shift from term deposits to mutual funds will continue with decreasing interest rates Building deposits stay flat (this product never reached the same level of attractiveness as in CR) Pension funds are expected to be a key driver of growth after 2004 *Excluding Pension funds (0.27 billion EUR in 2003) and Life insurance (1.14 billion EUR in 2003)

9 VOLUME OF LOANS SHOULD GROW AFTER BAD LOAN TRANSFERS REALIZED IN 2001 AND 2002 COMPANIES HOUSEHOLDS OTHERS PRIVATE FINANCIAL LIABILITIES BANK LOANS 9,9 8,2 8,5 9,8 OTHER LOANS* BUILDING LOANS MORTGAGES CONSUMER LOANS *) includes overdrafts, FX loans, investment loans etc. 1,1 1,3 1,5 2,1 Source: National Bank of Slovakia (NBS) Flat Exchange rate used as of Dec 31, 2003 EUR billion (SAS) In medium term: Total bank loans are expected to grow by 6-8% a year Loans to companies should grow at 5-6% a year due to higher banks’ willingness to provide loans to small and medium enterprises In medium term: Total bank loans are expected to grow by 6-8% a year Loans to companies should grow at 5-6% a year due to higher banks’ willingness to provide loans to small and medium enterprises Growth of total household loans at around 11-13% a year in the medium-term can be threatened by increasing uncertainty resulting from recent government reforms Volume of mortgages is expected to grow at 25-30% a year Growth of total household loans at around 11-13% a year in the medium-term can be threatened by increasing uncertainty resulting from recent government reforms Volume of mortgages is expected to grow at 25-30% a year

10 Source: NBS Net interest income Net fee income BANKING SECTOR IN SLOVAKIA HAS MUCH HIGHER PORTION OF INTEREST INCOME THAN CZECH BANKING SECTOR Net interest income covers about 70% of total operating income Net fee income is still low due to the strong competition on the Slovak market Improvement in cost efficiency was visible in when the bank staff was reduced by 9% It is expected that the Slovak banking sector profitability will further decrease in the medium-term due to lower NII and stagnant fee income due to high competitiveness Net interest income covers about 70% of total operating income Net fee income is still low due to the strong competition on the Slovak market Improvement in cost efficiency was visible in when the bank staff was reduced by 9% It is expected that the Slovak banking sector profitability will further decrease in the medium-term due to lower NII and stagnant fee income due to high competitiveness Net profit Operating Income EUR million (SAS)

11 International Comparison Size of the Banking Sector Credit Structure Retail Lending Loans to Deposits Competitiveness

12 SIZE OF THE BANKING SECTORS Banking assets as % of GDP Source: ECB, IMF The Czech and Slovak banking sector is still relatively underdeveloped compared to EU countries in terms of total banking assets as % of GDP. While most of EU countries have a banking assets/GDP ratio over 150%, the Czech and Slovak banking sector was around 85% in 2002 and The Czech and Slovak banking sector is still relatively underdeveloped compared to EU countries in terms of total banking assets as % of GDP. While most of EU countries have a banking assets/GDP ratio over 150%, the Czech and Slovak banking sector was around 85% in 2002 and 2003.

13 STRUCTURE OF CREDITS COMPARED TO EURO-ZONE Loans provided to private companies and households* Source: CNB, NBS, ECB CZECH REPUBLIC 27,5% LOANS/GDP SLOVAKIA 28,7% LOANS/GDP EURO-ZONE 90,3% LOANS/GDP Household credits make only half of volume of loans provided to companies in the CR. In Slovakia, this ratio is even lower. *) loans to government and financial institutions are excluded **) include loans to individual enterprises, credit cards, overdrafts, FX loans, investment loans etc.

14 THE GROWTH POTENTIAL OF THE MARKET IN RETAIL LENDING Household Credits 2003 (% of GDP) Source: ECB, CNB, NBS*) include loans to individual enterprises, credit cards, overdrafts, FX loans, investment loans etc. 48% 10% 8% Total retail loans including individual enterprises still capture only 8-10% of GDP which is five times less than the average of the Euro-zone.

15 COMPARISON BETWEEN BALANCE SHEET STRUCTURE IN EU COUNTRIES AND CZECH AND SLOVAK BANKS Banking Loans/Deposits Source: ECB, Patria

16 OVERVIEW OF MARKET CONCENTRATION 2002 Market Share of TOP 4 Banks in loans and Deposits Source: CGE&Y analysis, CNB, NBS, Regulatory reporting of top banks in CR and SR, CSOB