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E - Leader International Leadership Conference June 11 – 15, 2006 Bratislava Anna Pilkova UniCredito Italiano Group INDEX Introduction Slovak economy and banking sector Macroeconomic context and future expectations History of the banking sector in brief and main business trends in the banking sector today UniBanka and it´s strategic changes over 15 years of existence 2 The main features about SLOVAK REPUBLIC 1993 – establisth of Slovak Republic • inhabitants: 5 million • neighbouring countries: Czech Republic, Poland, Ukraine, Hungary, Austria 2004 - joining European Union 2009 - a part of the European Monetary Union 3 INDEX Introduction Slovak economy and banking sector Macroeconomic context and future expectations History of the banking sector in brief and main business trends in the banking sector today UniBanka and it´s strategic changes over 15 years of existence 4 Sound macroeconomic conditions have been reflected in major sovereign rating improvements 5 Moody's S&P Fitch Poland A2/Stable BBB+/Stable BBB+/Positive Hungary A1/Negative A-/Negative BBB+/Stable Czech Republic A1/Positive A-/Positive A/Stable Slovakia A2/Positive A/Stable A/Stable Slovenia Aa3/Positive AA-/Stable AA-/Positive Estonia A1/Positive A/Positive A/Positive Latvia A2/Positive A-/Stable A-/Stable Lithuania A3/Positive A/Positive A-/Positive Bulgaria Baa3/Stable BBB/Positive BBB/Stable Romania Ba1/Positive BBB-/Stable BBB-/Stable Croatia Baa3/Stable BBB/Stable BBB-/Stable Turkey Ba3/Stable BB-/Positive BB-/Positive The best rating among the V4 countries given by 2 out of 3 main rating agencies Improvement in rating in the last 2 years Deterioration in rating in the last 2 years Source: Rating agencies, UniBanka, UniCredit NE Division Performance of the economy: Macroeconomic scenario for 2004-2008 Indicator Key indicators for Euro adoption 2004 2005 2006F 2007F 2008F Real growth in GDP (%) 5.5 6.0 6.3 6.3 5.8 Growth in investments (%) 5.0 13.8 13.9 5.8 3.8 Growth in consumption of households (%) 3.8 7.2 5.1 3.6 4.4 Growth in government´s consumption (%) 2.0 0.5 1.8 1.5 1.7 Inflation - Dec (%) 5.9 3.7 3.5 2.1 2.0 Unemployment rate (%) 15.6 13.1 12.2 12.1 12.0 Average exchange rate €/SKK 40.0 38.6 37.0 36.1 36.0 4.8 3.0 3.6 3.8 3.8 1M BRIBOR (average, %) Current account (%, GDP) -3.4 -8.6 -5.5 -3.6 -2.8 Public deficit (%, GDP) -3.0 -2.9 -2.7 -3.0 -2.7 Public debt (%, GDP) 41.6 34.5 38.4 37.8 37.5 2.3 4.0 5.7 3.5 3.3 Direct foreign investments 6 Source: Statistical Office of SR, NBS, Office of Social Affairs and Family, UniBanka Growth should remain robust... ... mainly driven by investment activity... ... and gradual dissinflation. Public deficit could be higher after elections Maastricht criteria: Inflation will be the hardest nut to crack Inflation vs. Maastricht criteria 10,0% f orecast 9,0% Slovakia able to fulfill Maastricht criteria despite difficulties 8,0% 7,0% 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% www.hotelset.sk 0,0% 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 1. 2. 3. •Maastricht criteria estimate UniBanka based on IMF forecast 2004 2005 2006 NBS targ et HICP (y/y, 12M avg .) 2007 2008 Maastricht* Public finance deficit vs. Maastricht criteria 0,0% -1,0% 2002 2003 2004 2005 2006F 2007F 2008F -2,0% -3,0% -3,0% -4,0% -2,9% -2,7% -3,0% -2,7% -3,7% -6,0% -8,0% 7 -9,0% -7,7% Slovakia fulfills Maastricht criteria Based on 2006-2008 budget proposal, Slovakia should by able to fulfill both public finance criteria (deicit andd debt), even if the pension reform costs will be included Exchange rate stability – the range is set to 32,687 – 44,223 SKK/€ - no problems expected -5,0% -7,0% Slovakia should fulfill inflation criteria in H2 2007, however risk still comes from energy (oil) prices development Maastricht criteria – 3% forecast Interest rate stability - Slovakia safely fulfill Maastricht criteria – no problems expected also in upcoming years (Maastricht criteria at the level of 5.61% p.a. vs. Slovakia long-term interest rate at the level of 4.01% p.a. in March 2006) INDEX Introduction Slovak economy and banking sector Macroeconomic context and future expectations History of the banking sector in brief and main business trends in the banking sector today UniBanka and it´s strategic changes over 15 years of existence 8 Restructuring of a quarter of loans portfolio and subsequent privatisation lead to the present good results 1993- 2006: Evolution of the Slovak banking sector in brief 1993 1999 1997 2002 2006 Restructuring starts: 25 banks, 75% of capital in local hands Slovak republic established NPL ratio: 36%* 9 Note: *at the end of 1998 Source: NBS, UniBanka 29 banks present, 61% of capital in local (state) hands Restructuring finalised: 20 banks, 14% of capital in local hands NPL ratio: 31% NPL ratio: 11% 23 banks present: 4% of capital in local hands, ROE at16%, no bank in red numbers NPL ratio: 5% Intermediation of the financial sector – a huge potential for future growth in the whole region Total Loans over GDP 2002* 2005 90% 120% Eurozone (2005) = 115.4 80% 70% 60% 50% 39% 40% 30% 20% 10% 0% PL HU CZ SK Source: UniCredit New Europe Research Network and UniCredit Research and Strategy 10 HR RM BG TK Slovak banking sector with a position at the average of the region Backed by financial assets, the indebtedness of households does not seem so low anymore Data as of 2004 Household Debt over Fin. Wealth Estonia 83% Croatia 46% Hungary 36% Per capita debt Household Debt over GDP 50% Eurozone 32% Croatia 24% Estonia Eurozone Croatia 1,603 1,587 31% Hungary 20% Estonia Latvia 29%(*) Latvia 19% Czech R. Bulgaria 28% Eurozone 27% Poland 1,939 Hungary Romania Czech Rep. 13,286 1,217 14% Latvia 852 13% Poland 740 Poland 24% Bulgaria 12% Slovakia 663 NE(10) 23% NE(10) 12% NE(10) 540 Slovakia 22% Slovakia Bulgaria 300 Czech R. 21% Turkey Turkey 210 Romania 143 Turkey 11 13% Romania 10% 6% 5% Note: (*) As of end of 2003. Source: UCI New Europe Research Network Database, based on National Central Banks and Eurostat Slovak banking sector in words 23 banks are present on the market, mainly with general licenses Capital ownership structure dominated by Austria (36%) followed by Luxembourg (32%) and Czech republic (9%). Non EU countries own 4% of local banking capital Management Boards of TOP10 banks are dominated by foreign members (54%). Share of women remains low, at 8% Market development was characteristic by lending boom on the 12 retail side while cash-flow improvement and strong investment activity on the corporate side In terms of P&L impacts, the increased competition and monetary relaxing shifted the P&L structure towards a decreased role of interest income Inspite of an increasing competition and 98% of the banking sector assets being in foreign hands – the sector remains highly concentrated 2005 Ranking of the Slovak banking sector (SKK ths.)** TOP3 holding above 50% of the market TOP 3 holding above 40% of the market 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Balance sheet value VÚB 227 403 847 SLSP 225 560 305 ČSOB 185 391 306 Tatrabanka 184 118 202 ING bank 105 188 876 HVB Slovakia 76 239 458 UniBanka 53 623 937 Dexia banka 45 787 324 PSS 45 698 419 OTP banka 39 332 747 Istrobanka 35 261 591 Ľudová banka 30 992 534 Citibank 29 094 792 Poštová banka 23 369 574 Calyon 16 586 327 VUB Wüstenrot 9 033 236 Commerzbank 6 466 336 Komerční banka 6 295 771 ČSOBS 6 070 486 Privat banka 5 466 999 Due from clients 83 380 430 90 144 890 30 093 472 78 990 399 15 058 388 36 885 045 26 389 178 24 896 455 34 753 061 28 447 994 20 435 294 18 471 933 13 343 551 7 099 371 6 929 123 5 320 560 2 440 139 3 083 698 2 094 284 1 199 672 Note: Ranking based on balance sheet values; Source: UniBanka Due to clients 162 302 493 177 842 851 59 263 645 130 950 069 38 235 703 28 569 417 41 011 385 31 256 095 36 675 746 22 415 342 19 635 740 23 807 562 20 280 777 20 049 002 3 955 187 7 822 010 690 609 297 430 5 247 580 4 142 571 Net profit 3 780 755 3 313 679 374 773 2 380 135 407 736 730 289 381 730 233 991 653 858 190 839 189 242 152 383 308 487 226 903 15 720 73 031 3 736 2 019 1 191 42 719 Major foreign owner Intesa BCI Erste bank KBC Reiffesien ING UniCredit UniCredit Dexia Bausparkassen OTP Bawag Volksbank Citigroup Calyon Wüstenrot Commerzbank Societe Generale KBC Meinl Bank Top 3 players holding 70% of the market profit UCI + HVB + BACA BY FAR NO. 1 IN CE Net Profit (€ mln)(2) Dec. 2004 (1) Revenues (€ mln) UniCredit + HVB 1,163 (100% of all banks, including Yapi) OTP(4) 557 418 SocGen 408 KBC 264 Intesa 242 Citigroup 1,715 176 83.7 16.9 18.0(3) 1,420 1,126 1,110 826(5) n.a. 19.7 786 875(3) 1,245 722 34.8 1,017 24.7 16.4 14.8 Source: UCI-FBD Economic Research; numbers calculated using average exchange rate except for Unicredit 14 2,864 33.3 1,660 319 RZB N. of branches 4,982 576(3) Erste Assets (€ bln) 1. 100% of total assets and profit after tax for controlled Companies (stake > 50%) and share owned for non controlled companies; 100% of branches and employees; for details please refer to the methodological notes. 2. After tax, before minority interest. 3. Including proforma recently acquired Novabanka; 4. Including OTP’s subsidiaries. 5.Data on total revenues refer to contribution to Intesa’s consolidated results 814 498 237 INDEX Introduction Slovak economy and banking sector Macroeconomic context and future expectations History of the banking sector in brief and main business trends in the banking sector today UniBanka and it´s strategic changes over 15 years of existence 15 UniBanka is a member of UniCredit Group one of the best banking groups in Europe Italy Germany Austria CEE Poland Hungary Czech Republic Slovakia Bulgaria Romania Croatia Bosnia Herzegovina Serbia Montenegro Slovenia Turkey Ukraine Lithuania Latvia Estonia Russia 16 Bank Profile and Strategy Evolution Established 1990 as a first private bank in Slovakia Medium-sized bank in comparison with banking sector in Slovakia Commercial bank offers full range of retail (including SME) corporate and investment banking products and services Main shareholders UniCredito Italiano S.p.A., Milan EBRD, London The Ministry of Agriculture Others 17 Domestic network 77,21% 19,90% 1,09% 1,8% 10 branches and 56 sub-branches connected on-line reach about 80% of population Results and branch network of UniBanka Total Assets Deposits Loans Total revenues Net Profit Registered capital 53,725,903 42,832,284 26,389,178 1,909,371 365,228 Branches Employees Deposits / Loans Capital adequacy 66 998 1.62 12.21 % 2,377,062 In thous. SKK, IAS consolidated data as of 31st December 2005 10 Regional branches 56 Local branches UniBanka, a. s.: • has highly developed branch network • holds strong corporate banking position including property development financing • reinforces orientation on services in foreign trade • offers balanced portfolio of competitive products and 18 services for corporate clients, managers and employees Bank Profile and Strategy Evolution... Bank Life Cycle... 1990 – START – UP ENTERPRENEURIAL 1991 - 1996 1997 – 2000 GROWTH STAGNATION-DECLINE KEY CHALENGES KEY SEGMENTS IDENTIFICATION HIGHT GROWTH BUT NOT IN HARMONISED WITH OTHER PROCESSES PART.RISKS FRAGMENTED SHAREHOLDER´S STRUCTURE SURVIVAL SHAKEOUT 2001 – STRATEGIC OWERSHIP TURNAROUND NEW STRATEGIC REENGINEERING MGMT PROCESS NEW CULTURE 19 2006 MERGER GROWTH STRATEGY THROUH AQUISITION Bank Profile and Strategy Evolution PERIOD/STRATEGIC EVENTS 26.6.1990 – Establishment under the name Slovenská poľnohospodárska banka -Idea of bank establishment came from the man who was the first CEO l.l.1991 – Starting of Banking Activities 1992– Privatisation process has started 1993-Slovak republic was established and EBRD bought stake in the Bank 1993-1994 – Important macroeconomic change occurred(decrease of GDP, significant growth of MM prices, slow down in agrisector 1994 – changing the name – Polnobanka 20 MAIN SHAREHOLDERS STRATEGIC FOCUS Slovak insurance company - SP (31,91%) Ministry of Agric. - MP(7.2%) Agrobanka Praha-AG (6,7%) Other (54,19%) . Start-up business focusing on agribusiness sector . Dynamic growth mainly in loan side while funding was done through financial institutions . Personal from former State Bank Czechoslovakia and Non banking industries SP – (31,91%) EBRD – (20,0%) MP – (8,65%) AG – (3,75%) Other –(35,69%) .Enlargment of business segments towards newly set up start-ups, mainly shops . Starting cooperation with EBRD through co-financing mainly food processing companies . Hiring new staffs with „western type of education“and starting trainings in this directions Bank Profile and Strategy Evolution PERIOD/STRATEGIC EVENT 1995 – new strategy formation and implementation has started 1996 – two Italian financial groups – Unicredito,S.p.A and Finest,S.p.A. joined the bank 21 MAIN SHAREHOLDERS SP - (31,91%) EBRD – (20%) UcI(7,5%) Finest – (7,5%) MP – (8,32%) AG – (1,78%) Other –(22,99%) STRATEGIC FOCUS . From agribusiness to universal banking with providing of full range of services and products of commercial and investment banking through concepts of relationship banking and improvement of credit granting process. The crucial segments were: Corporate,SME´s and Citizens. Within corporate special attention was done to Italian enterpreneurs Bank Profile and Strategy Evolution PERIOD/STRATEGIC EVENTS 1997 – the first CEO left the bank - the first signs of bank stagnation appeared 1998 – corporate governance change – instead of external Board of Director System Internal one was introduced. BoD had two Slovak members and one British guy – EBRD repres. 22 MAIN SHAREHOLDERS SP - (31,91%) EBRD – (20%) UcI(7,5%) Finest – (7,5%) MP – (8,32%) AG – (1,78%) Other –(22,99%) STRATEGIC FOCUS . Continuing implementation of strategy defined in 1995 through changing of organizational structure as follows:a/ separating business from risk mgmt and Credit risk was a major priority, b/ set up two business units focusing on corporate (incl. SME) and citizens. c/ strategic customer services and products were design – focusing mainly on tailored made system Bank Profile and Strategy Evolution PERIOD/STRATEGIC EVENTS 1999 – a few failures of commercial bank occured – Priemyselná banka, Agrobanka, Slovensko, Banka Haná – negative impact on Poľnobanka – a few runs on liquidity MAIN SHAREHOLDERS SP (31,91%) EBRD (20%) UcI (7,5%) Finest (7,5%) MP (8,32%) AG (1,78%) Other (22,99%) STRATEGIC FOCUS 2000 – May , SP decided to increase capital and subsequently sold 51% of shares to UniCredito Italiano..... UCI (72,39%) EBRD (19,9%) MP (1,59%) AG (0,34%) Others (4,35%) . Turnoround . New growth strategy formation and implementation 2002 – April- changing of the name – UniBanka 23 . To find strategic shareholder and capital. . Bad loan portfólio solving. . Strict credit granting process – continuing. Bank Profile and Strategy Evolution PERIOD/STRATEGIC EVENTS MAIN SHAREHOLDERS STRATEGIC FOCUS UCI (77,21%) EBRD (19,90%) MAG (1,09%) Others (1,8%) . Focus on improving position in Retail and SME´s sector . To be the 4th largest bank in Slovakia – challenging the 3rd one . To be 2nd largest corporate bank 2005 – June – Aquisition fo HVB Bank by UniCredito Italiano Milan 2006 – Merger of local HVB bank with UniBanka 24 After merger with HVB group became UniCredit Group leader on markets of CEE countries ITALY: N. 2 with 10% market share1 Customer Loans: 122 bn Euro Customer Deposits: 72 bn Euro Branches: 3,137 Employees: 40 000 Customers: 6.3 mn GERMANY: N. 2 with 5% market share1 Customer loans: 153 bn Euro Customer Deposits: 61 bn Euro Branches: 681 Employees: 26,000 Customers: 4,0 mn AUSTRIA: N. 1 with 18% market share1 Customer Loans: 51 bn Euro Customer Deposits: 35 bn Euro Branches: 405 Employees: 12,000 Clustomers: 1.8 mn CENTRAL AND EASTERN EUROPE: N. 1 bank2 Countries of presence: 163 Customer Loans: 41 bn Euro Customer Deposits: 47 bn Euro Employees: 58,0004 Customers: 16.4 mn Source: Company data of year end 2004, except Hebros Bank as of 2003 25 1. Ranking measured in terms of total assets. For market share calculations UniCredit and HVB may apply different definitions as far as the underlying data is concerned. 2. Ranking measured in terms of total assets. Including Hebros Bank, Eksimbanka, IMB and Yapi. Banca Ion Tiriac not included. For Yapi included 50% of loans and deposits and 100% od branches and customers. For customer customer loans, customer deposits, branches, employees and customers data not included for Ukraine and Baltic Countries. 3. Included Poland, Hungary, Czech Republic, Slovakia, Bulgaria, Romania, Croatia, Bosna Herzegovina, Serbia Montenegro, Slovenia, Turkey, Ukraine, Lithuania, Latvia, Estonia and Russia. Excluding representative offices. 4. Including 100% Yapi, excluding Hebros Bank, Eksimbanka, IMB, Ukraine and Baltic Countries. KEY RESULTS AS TO 31.12.2005 - solid, profitable and growing company Market capitalisation Group:1 In terms of market cap: 5th largest European financial group and 2nd in Euro zone 60 billion EUR Loans and receivables Group: 426.6 billion EUR Direct Deposits Group: 462.2 billion EUR Assets Group: 787 billion EUR 26 1. Group (everywhere): pro forma – considering HVB as part if the UniCredit Group for all the year 2. Without considering the integration cost Total revenues Group: 20,791 mil EUR Net Income2 Group: 3,308 mil EUR Empoyees Group: 132,914 Branches Group: 7,184 NEW GROUP BUILT TO LEVERAGE OPPORTUNITIES IN ALL CUSTOMER SEGMENTS AND MARKETS Retail Division Corporate and SME Div. Private Banking and AM Division Multinationals/ Investment Banking Division Central and Eastern Europe Division BANKING GROUP WITH HIGH INTERNATIONAL RATING: 27 FITCH RATINGS Moody‘s Investor Service Standard and Poor‘s ST debt F1 P-1 A-1 T/LT debt A+ A1 A+ Outlook Stable Stable Negative Commercial Real Estate