THE UKRAINIAN BANKING SYSTEM 15th BACEE Country and Bank Conference November 2006, Budapest

Ukraine: number of registered and functioning banks Number of functioning banks still growing In 2005, 6 new banks registered, in 9 months of 2006 – another 9 (Sygmabank, ”Prestige”, Delta Bank, AIC-Bank, Partner Bank, Bohuslav Bank, ”Concord”, Ipobank, Finansbank) 15th BACEE Country and Bank Conference November 2006, Budapest

Banks with foreign participation 15th BACEE Country and Bank Conference November 2006, Budapest

Share of foreign investors in UA banks’ statutory capital (%) 15th BACEE Country and Bank Conference November 2006, Budapest

Major acquisition of stakes in Ukrainian banks by foreign investors in Bank's nameRank in UA as of Investor's name Aval2Raiffeisen International Ukrsibbank3BNP Paribas Ukrsotsbank5Banca Intesa Raiffeisenbank UA7OTP VABank19TBIH Group NL (minority) Index-Bank22Credit Agricole Mria Bank26VTB Megabank42BA-CA NRB-Ukraine43Sberbank Agio (SEB Bank)55SEB Agrobank56Home Credit (PPF) Bank Universalnyi74EFG Eurobank Prestige Bank 58Erste Avtoinveststroybank Russian Standard Leader-BankRenaissance Capital UA banks abroad: Ukrprombank buys 35% of Arminvestbank, Pivdennyi Bank buys Regional Investment Bank (Latvia) 15th BACEE Country and Bank Conference November 2006, Budapest

Ukrainian banks: Total Assets (gross), bn UAH 15th BACEE Country and Bank Conference November 2006, Budapest Dynamic growth

Top Ukrainian banks by Assets as of 1 January 2005 Most of large banks grow quicker than industry average 15th BACEE Country and Bank Conference November 2006, Budapest

Ukrainian banks: Loans/1 (bn UAH) Retail loans became main driver of lending growth 15th BACEE Country and Bank Conference November 2006, Budapest

Ukrainian banks: Loans/2 (bn UAH) Average maturity of loans is shortening 15th BACEE Country and Bank Conference November 2006, Budapest

Improving loan performance 15th BACEE Country and Bank Conference November 2006, Budapest

Ukrainian banks: Deposits (bn UAH) All deposit categories grow quickly, most dynamically private term deposits 15th BACEE Country and Bank Conference November 2006, Budapest

Household deposits: currency structure Increasing share of savings in FX th BACEE Country and Bank Conference November 2006, Budapest

Top-10 Ukrainian banks by deposits (as of ) 15th BACEE Country and Bank Conference November 2006, Budapest Clear distinction between retail, corporate strategies

Ukrainian banks: Equity (M UAH) Equity increases quickly, in line with T.A. 15th BACEE Country and Bank Conference November 2006, Budapest

Top Ukrainian banks by equity Ukrexim, Raiffeisen UA (OTP), are relatively better capitalised (Equity/T.A.) than their peers. Ukrprombank is the only in TOP-10 by equity not ranked in Top-10 by T.A. 15th BACEE Country and Bank Conference November 2006, Budapest (M UAH)

Ukrainian banks: after-tax profit (M UAH) 15th BACEE Country and Bank Conference November 2006, Budapest

TOP-10 Ukrainian banks’ H profit (M UAH) 15th BACEE Country and Bank Conference November 2006, Budapest Substantial differences in the TOP-10 peer group

TOP-10 Ukrainian banks by H profit (M UAH) 15th BACEE Country and Bank Conference November 2006, Budapest

Ukrainian banks: annualised ROA in % (for gross assets) Quick improvement of profitability 15th BACEE Country and Bank Conference November 2006, Budapest

Ukrainian banks: annualised ROE in % Quick improvement of profitability 15th BACEE Country and Bank Conference November 2006, Budapest

Top-10 Ukrainian banks by ROA (net assets) in % Only a few of the largest banks have above-the-average profitability 15th BACEE Country and Bank Conference November 2006, Budapest

Events 2006 BIG Energy Bank Stabilisation credit by NBU to Express-Bank Restrictions by NBU on operations of Novyi Bank and Stolychnyi Bank Small-scale Harant Bank collapses, NBU introduces temporary administration in Kyiv Universal Bank Interkontynentbank experiencing solvency problems 15th BACEE Country and Bank Conference November 2006, Budapest

Positive factors Proven crisis management ability of NBU Steady growth of assets, deposit base, equity Improving loan portfolio quality Tightening of capital requirements by NBU Increase of foreign ownership results in higher competition, better management skills, improvements in risk management Negative factors Quick increase of lending may raise concerns over banks’ risk management systems In case of economic downturn, asset quality may suffer in particular in Kiev’s inflated housing market In many cases, generally sound capital ratios are undermined by lack of transparency of ownership In many of the banks high overhead costs still result in relatively low profitability 15th BACEE Country and Bank Conference November 2006, Budapest

Business risks: Opaque ownership Level of owners’ support untested Fragmented corporate client base Aggressive growth strategies Financial risks: High credit risk concentrations Significant exposure to related parties Concentrated and volatile corporate customer base Low capitalization Progressively growing operating costs Profitability generally low 15th BACEE Country and Bank Conference November 2006, Budapest

Expected tendencies Further increase of foreign ownership M&A tendency to continue Slow consolidation may speed up Decreasing margins to force banks to improve cost control Planned change in banking law Foreign banks to be authorised to open branches in UA, subject to: Co-operation of country of registration with FATF Minimum statutory fund EUR 150 M Unconditional guarantee of mother bank for the branch’s liabilities 15th BACEE Country and Bank Conference November 2006, Budapest