BANKING IN CEE: adequate risk appetite crucial to win the upside UniCredit Group CEE Strategic Analysis Vienna, November 9, 2009

2 Executive Summary 1  World economic growth is recovering and this boosts prospects in CEE will show a positive regional growth, though this will remain below potential and subject to risks  Strong regional differentiation is confirmed, with Central Europe better prepared to catch the international recovery. The performance of different banks in the same market can widely differ  Markets are out of a “liquidity-crisis mood” – credit quality and risk appetite are today’s key constraints for CEE banking  Medium term: “CEE convergence story” holds, but the banking model has to be rebalanced  Financial penetration will continue, but the pace of growth will moderate, with availability of funding (domestic or external) the main driver  Changing competition allows for leaner structure of costs  Cost of risk to stay high, representing a constraint for banking profitability

3 Executive Summary 2  The changing competitive environment means also opportunities  All CEE players have been affected by the crisis – access to funding, credit quality, business/network diversification and strength the determinants of future success  New entrants might take opportunities  Winners – new entrants or consolidated players, with appropriate risk appetite for CEE, able to leverage on strong funding, capital and network positioning and sound risk  UCG ready to take the upside – the Group can leverage on diversification, a strong regional network and newly raised capital to strengthen and optimize its positioning in the market

4 AGENDA 1.How the CEE banking landscape has changed in the short term 2.Banking through the crisis 3.International players - UniCredit ready to take the upside

5 Note: (1) CEE-17: Poland, Hungary, Czech R., Slovakia, Slovenia, Lithuania, Latvia, Estonia, Romania, Bulgaria, Croatia, Bosnia-H, Serbia, Turkey, Ukraine, Russia and Kazakhstan Source: UniCredit Group CEE Strategic Analysis, CEE Research Signs of recovery: still 2010 implies growth below potential and countries confirm to be very different Low macro vulnerability 25 High macro vulnerability 341 Country Rank PL SK Turkey Russia CZ BG Ukraine RO HU KZ Baltics Poland Hungary Czech Rep Slovakia Slovenia Lithuania Latvia Estonia Romania Bulgaria Croatia Bosnia-H Serbia Turkey Ukraine Russia Kazakhstan CEE Real GDP growth (%) HR BH SI

6 Drivers of growth differ among countries. Recovery comes from the production sector, but both investment and consumption remain subdued Source: UniCredit Group CEE Research Investments (real % growth) Consumption (real % growth)

7 Out of a “liquidity-crisis mood”, but funding availability and cost remain a constraint for CEE banking Country Risk Premium 5Y CDS (USD, bp) CEE external liabilities (1) (1) CEE-17 Source: UniCredit Group CEE Strategic Analysis 3,274 1,168 € bn Banking sector external liabilities (% on total liabilities, June 2009)

8 Notes: (1) Nominal growth rates are corrected for the exchange rate changes weighted by the relevance of FX in loans' volumes in the previous period. This allows to have an idea of growth of loans and deposit which is independent from the pure effect of depreciation of the currency Source: UniCredit Group CEE Strategic Analysis Banks are rebalancing the loans/deposits gap Total banking system deposits (1 ) (June 09 vs Dec 08 % change FX adj) Loan-to-deposits ratio (banking system level, %) Total banking system Loans (1 ) (June 09 vs Dec 08 % change FX adj)

9 (1)Incl. loans classified under substandard, doubtful and loss categories; in Ukraine, data refer to problem credits (overdue and doubtful); in Kazakhstan, data refer to doubtful loans under category 2,4,5 and bad loans; in Romania, data refer to loans classified under doubtful and loss categories Source: UniCredit Group CEE Strategic Analysis, local CBs Non-performing loans ratio (total banking system, in % of gross loans) (1 ) Deterioration in credit quality is today’s challenge

10 AGENDA 1.How the CEE banking landscape has changed in the short term 2.Banking through the crisis 3.International players - UniCredit ready to take the upside

11 The long term potential of the CEE region is intact Real income convergence in CEE (1) (1) CEE incl. new EU member states, Croatia and Turkey; calculation based on GDP per capita expressed in dollar terms Source: UniCredit Group CEE Strategic Analysis, IMF, ECB Financial deepening process (% of GDP and PPS in dollar terms) GDP per capita Total banking assets Western Europe CEE The story of economic and income convergence towards the standards of Western countries, as well as the potential related to the banking sector penetration gap, continue to hold

12 KEY COMPETITIVE ADVANTAGES More balance growth model – still with external funding Lending tied to funding strategies, but external funding still necessary Strong advantage for banks with a widespread network and/or strong and motivated foreign owner More moderate “convergence” Retail network crucial for deposit gathering Lending growth to re-start from corporate In retail, a structural gap holds for mortgage, while consumer credit already at international standards Change in demand – simpler products / services In the short term, less retail lending and less investment financing. More trade financing and in general services Risk appetite and cost of risk Quality of existing loan portfolio key in determining whether banks will be forced to concentrate on risk control or might start leveraging on new opportunities KEY CONSTRAINTS CEE banking - the medium-term scenario implies new constraints and new competitive advantages Cost control The crisis opening the way to leaner structures and deflating “bubbles” in staff and network costs Substantial change in the competitive framework ■Stronger state role ■New entrants profiting from others’ risk aversion ■Systemic banks with long term approach might benefit, provided adequate risk appetite

13 Financial penetration moderating but continuing; credit expansion more tied to deposits’ growth (1) CEE aggregate including all EU member states, Bosnia, Serbia, Croatia, Turkey, Russia, Ukraine and Kazakhstan Source: UniCredit Group CEE Strategic Analysis After some re-balancing in 2009 and H loan-to-deposits ratio in CEE 1 to gradually increase over time Our forecast

14 Lending growth will gradually restart from corporate, with deposits also showing some moderate acceleration (1) CEE aggregate including all EU member states, Bosnia, Serbia, Croatia, Turkey, Russia, Ukraine and Kazakhstan Source: UniCredit Group CEE Strategic Analysis

15 A structural change in the cost structure Cost-to-income ratio (%) (1) (1) CE: Czech R., Hungary, Poland, Slovakia, Slovenia; SEE: Bosnia, Bulgaria, Croatia, Romania, Serbia; Other: Kazakhstan, Russia, Ukraine, Turkey Source: UniCredit Group CEE Strategic Analysis Cost savings programmes coming into the spotlight Branch expansion plans halted during the crisis by almost all banking groups operating in the region Players who want to catch the region’s upside need to restart some investment activities as soon as market conditions allow

16 Non-performing loans to peak in 2010, but cost of risk already converging Non performing loans, in % of gross loans (1),(2) (1) Substandard, doubtful and loss on average gross loans; in Ukraine, data refer to problem credits (overdue and doubtful); in Kazakhstan, data refer to doubtful loans under category 2,4,5 and bad loans; in Romania, only doubtful and loss; (2) CE: Czech R., Hungary, Poland, Slovakia, Slovenia; SEE: Bosnia, Bulgaria, Croatia, Romania, Serbia; Other: Kazakhstan, Russia, Ukraine, Turkey; (3) Generic + Specific provisions. Source: UniCredit Group CEE Strategic Analysis Cost of Risk (provisions (3) in % Ø gross loans) (2)

17 Credit quality the key concern - our stress test (1) for the region performed at the beginning of the year still valid (1) NPL in percentage of gross loans; in Ukraine, data on non-performing loans differ from the official CB reporting as they include also off-balance sheet items; data for Croatia include off-balance sheet items; stress test has been performed assuming additional collateral haircut (30% in CIS and 10% in the rest of CEE countries). Source: UniCredit Group CEE Strategic Analysis Non-performing loans and stress testing (1)

18 Source: UniCredit Group CEE Strategic Analysis Size of banking profits of each period Return on Assets Banking profitability subdued in the short term as cost of risk is the main cause. Single players can perform quite differently from the market

19 AGENDA 1.How the CEE banking landscape has changed in the short term 2.Banking through the crisis 3.International players - UniCredit ready to take the upside

20 Total Assets (1) EUR bn Net Profit (2) EUR mn Number of Branches Countries of presence (3) OTP KBC Raiffeisen Erste UniCredit IntesaSP ,577 1,569 4,005 3,231 2,099 1,940 2,609 1,781 1, SocGen 1, %..% Contribution of CEE in Group Net Profit (After tax, after minority interests) Notes: (1) 100% of total assets, and profit after tax (before minority interests) for controlled companies (stake > 50%) and pro rata for non- controlled companies (stake < 50%). (2) After tax, before minority interest. (3) Including direct and indirect presence in the 25 CEE countries, excluding representative offices. (4) KBC Group recorded a loss in (5) SocGen including ProFin Bank in Ukraine. Source: UniCredit Group CEE Strategic Analysis 1, (4) 53% 2051% 157% 41% 5% n.s. CEE, % share in Group Assets (5) UniCredit Group is the largest player in CEE, well diversified, with 12% of group assets in the region DATA AS OF 2008

21 Winners and losers - times of change bring strong opportunities for those able to catch them Source: UniCredit Group CEE Strategic Analysis

22 Note: (1) T1 ratio is pro-forma Jun. 2009; CDS as of Oct. 2009, Cost of Risk as of Jun.2009, other data as of Dec. 2008; (2) ROA and CDS for each player have been calculated as weighted average of each country of presence (CEE17 perimeter, weighted for total assets of the player in each market); (3) The dimension of the balls is total controlled assets in CEE (2008); (4) It includes private and public T1 injections announced till mid October 2009; (5) Net loans; (6) CEE gap = sum of various (loans-deposits) only if loans > deposits. Loans are net loans; (7) Calculated for "International Subsidiary Banks", which include also Bank of Alexandria in Egypt Source: UniCredit Group CEE Strategic Analysis, Bloomberg CEE International players - Key strategic drivers (1) Profit potential of top players (2), (3) Winners to be those who enjoy an adequate risk appetite and can leverage on diversification and strong funding and network base UCG Raiffeisen Intl ErsteKBCSoGenIntesaOTP Assets in CEE, % of Group Assets Group T1 Ratio (4), % CEE Loans (5) / Deposits, % CEE GAP (6), % Group Assets Group CDS (current), bps CEE Cost of Risk, bps ~ 200> 300~ 200n.a. ~ 200 (7) > 300

23 Good market potential in 2010: UCG well positioned to catch it Note: (1) Ranking on Y axis taking into account countries’ macro and banking growth potential (based on expected GDP growth, level of financial deepening, relevance of mortgage market etc.) and risk factors (credit quality, funding gap etc.); ranking on X axis taking into account relevance of UCG CEE banks in the local market, potential for expansion and structure, quality and funding position compared to market average. Source: UniCredit Group CEE Strategic Analysis UCG Banks positioning Economy/banking growth potential vs. Risk environment low high low high CEE REGION: ASSESSMENT OF COUNTRY AND BANK POTENTIALS (1 ) Romania Croatia Hungary Bosnia-H. Bulgaria Baltics Ukraine Kazakhstan Serbia Slovenia Slovakia Czech R. Weight in total UCG CEE Revenues (full year 2008&H quarterly average) ~56% of UCG CEE Revenues ~79% of UCG CEE Revenues RussiaPolandTurkey

24 Source: UniCredit Group CEE Strategic Analysis Top 10 banks by total assets (Rank as of Dec.2008) Local competition likely to change: network optimization, some new entrants, state in CIS countries

25 Conclusions  Economic recovery, but risk and volatility remain. Strong regional differentiation is confirmed  Credit quality and risk appetite today’s key constraints for CEE banking  Medium term: “CEE convergence story” holds, but the banking model has to be rebalanced  The changing competitive environment means also opportunities  Winners – new entrants or consolidated players, with appropriate risk appetite for CEE, able to leverage on strong funding position (both through a strong domestic network or through international channels) and with sound risk  UCG ready to take the upside – can leverage on diversification, strong regional network and newly raised capital to strengthen and optimize its positioning in the market