E R S T E G R O U P AAFBR Conference Bucharest, November 2010 Outlook on the CEE Region Financial Markets & Debt Fritz Mostböck, CEFA Head of Group Research

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 2 The crisis is parked in government debt... Sources: Erste Group Research, “The Banker“ 2. Economic crisis 1. Financial crisis 3. Debt crisis

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 3 CEE: economy and government debt

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 4 Sources: Eurostat, Erste Group Research GDP growth, real (%) GDP growth rates of CEE countries overshadowing those of the established countries in the long term

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 5 GDP has more than tripled in some CEE countries in the past decade Sources: Eurostat, Erste Group Research GDP per capita in EUR UkraineSerbiaRomaniaCroatiaSlovakiaHungaryCzech Republic F GDP per capita in EUR more than tripled

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 6 Source: AMECO, Erste Group Research Public debt (EUR bn, 2010e) Low public debt in the CEE region  The total public debt of the Czech Republic, Slovakia, Hungary, Romania, and Croatia is about EUR 220bn... ... and is thus less than the public debt of Greece alone (EUR 30bn)  Inclusive of Poland, total public debt amounts to EUR 414bn  Less than Spain (EUR 661bn)  Less than a quarter of Italy (EUR 1835bn).

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 7 In terms of GDP, public debt is low and certainly (well) below the Eurozone average  All CEE countries except Hungary have maintained their aggregate debt below 60% of GDP  Hungarian debt is below the Eurozone average  The share of government bonds held outside the respective countries is relatively low in the CEE region  in CEE6 it accounts for about a quarter of public debt or 22-23% of GDP  In Greece the share accounts for two thirds of public debt or 90% of GDP Public debt (in % of GDP, 2010e) Sources: AMECO, JEDH, Erste Group Research 10 8,5 6,6 5 6,3 7,3 4 6,1 7,5

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 8 Recovery clearly noticeable, but base level and speed are very mixed Source: Erste Group Research q/q GDP growth (%)  Differentiation between the various countries is therefore crucial,  PL, CZ, and SK ahead, H and RO with a time lag / flatter development.

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 9 Substantially lower cost of labour and solid growth of productivity  Cost of labour (inclusive of social contributions) in CEE account for half of those in Spain and a third of those in Germany  This relation has even improved as a consequence of the depreciation of local currencies  ROE much higher in CEE because of lower unit cost of labour Nominal compensation per employee (EUR ‘000) Sourceds: AMECO, Erste Group Research

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 10 A glimpse at the growth figures Sources: Eurostat, Erste Group Research After the slump in GDP growth from 4% to -3.7% in 2009, we seem to be seeing a slight recovery in 2010 to +1.9% (EMU +1.6%), which should speed up to +2.9% (EMU +1.3%) in  The 2010 recovery has mainly come on the back of foreign trade  This contribution will subside in 2011, and the economic activity in the Eurozone should remain moderate  However, private consumption in the CEE region should record a clear rebound next year Risk factors  Weaker Eurozone economy  Stronger negative effects of the budget consolidation than anticipated GDP growth (base scenario,%)

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 11 Ytd performance equity markets Source: Bloomberg, performances in local currencies as of 3rd, Nov 2010 International Westeuropa CEE PIIGS Countries  Strong evidence for a link between government debt and YTD performance on the equity markets  Investors are clearly differentiating  The country approach is gaining importance again relative to the regional or sector approach  Debt will continue to burden financial markets

E R S T E G R O U P Bucharest November 2010 AAFBR Conference 12 CDS spreads have come back to normal levels, but Hungary and Romania are grappling with domestic (political) problems Sources: Bloomberg, Erste Group Research Sovereign credit default swaps (bps)

E R S T E G R O U P AAFBR Conference Bucharest, November 2010 Outlook on the CEE Region Financial Markets & Debt Fritz Mostböck, CEFA Head of Group Research