Corporate Banking Corporate Banking in Romania and in in Romania and in New EuropeNew Europe

Murat MentesMurat Mentes, Head of Corporate Marketing, Head of Corporate Marketing

Romania Top 100, 3. EditionRomania Top 100, 3. EditionBucharestBucharest, November 18, 2003, November 18, 2003

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EXECUTIVE SUMMARY

Countries in New Europe, with a vast market growing at a significantly higher pace than the average of EU, are moving from transition to EU convergence

This means new challenges for companies, of course including banks, in terms of optimal positioning in the market, new segments and products exploitation, new competitive pressure and search for efficiency  

Important market opportunities are also matched by decreasing risk

In the corporate segment customers’ demand and behaviour are changing in a sophisticated way, even though changes are less evident than those experienced by the retail segment

Changes partly depend on financial markets’ evolution, through employing different investment allocations for higher returns, using risk hedging instruments, etc, but the main driver for the change is still continuous financing needs of corporate segment for both investment and working capital purposes

The role of foreign banks has already proven to be very significant to bring capital and know-how that are fundamental at this stage of development of the corporate segment in NE countries to support the expected growth

Challenges are still ahead of us waiting for EU/ EMU convergence, legal and regulatory advancements, as well as Basle II implementation

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AGENDA

What is “New Europe”?

Romanian Economic Landscape

Corporate Segment Landscape

Corporate Banking in Romania and in New Europe

Steps Ahead

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WHAT is “NEW EUROPE” ?

(*) NE(12): CEE candidates for enlargement, plus Croatia and Turkey, excluding Cyprus and Malta

2004 ENTRANTS

LITHUANIA

CYPRUS*

HUNGARY

ESTONIA

LATVIA

POLAND

SLOVAKIA

MALTA*

SLOVENIA

2007 ENTRANTS

BULGARIA

ROMANIA

OTHER ASPIRANTS

CROATIA

TURKEY

CZECH REP.

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AGENDA

What is “New Europe”

Romanian Economic Landscape

Corporate Segment Landscape

Corporate Banking in Romania and in New Europe

Steps Ahead

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ROMANIAN ECONOMIC LANDSCAPE

Slow restructuring efforts along with slow foreign demand shall contribute to expected slowdown of economic growth in 2003

Structural reforms have progressed, although slower than recommended by IMF due to prolonged global recession as well as some political hindrances

Disinflation still remains the main target for Central Bank. Inflation has remained on a downward trend this year, but a single digit inflation still requires a considerable effort

International rating agency Standard & Poor’s has improved Romania’s assessment for LT

Banking system has continued to reinforce, through better intermediation of banking products, and continuous branch network development, steps towards structural changes

Corporate Segment lending is growing, faster than nominal GDP, but more slowly than retail. Retail Segment remains still a major objective for banks

The new credit quality regulation increased the total stock of NPL

Central Bank's decision to increase its reference interest rate was a result of talks with IMF to have a better control on non-governmental lending and to encourage savings

Growing trend in the unemployment rate

Service sector contribution to GDP is expected higher than the more traditional sectors in MT

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AGENDA

What is “New Europe”

Romanian Economic Landscape

Corporate Segment Landscape

Corporate Banking in Romania and in New Europe

Steps Ahead

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COMPONENTS of DEMAND for FINANCIAL SERVICES

Globalization, EU convergence Low-cost delocalization inflow Industry restructuring process Role of FDI Implementation of Market Economy principals Up-grade of country ratings

Transition from State to Private Growth of Private sector both domestic and international Lack of managerial skills required to grow Development of Private Entrepreneurship

Investment diversification, Increasing in-flow for private equity funds Local and international lending, non-reimbursable funds

DEMAND of CORPORATE SEGMENT

for FINANCIAL SERVICES

Transition from State to Private Acquisitions Specialization of networks, products and services Growing impact of technology Better intermediation

OWNERSHIP MODEL

FINANCIAL MARKETS

BANKING SECTORCOMPETITIVE FORCES

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PRODUCTS and SERVICES

Credit Facility, mainly cash, is still the key relationship building factor Developing market forces have great impact on the appetite for new products and services Improving business environment forces banks to provide diversified products, more flexibility, etc Market evolution forces relationships based on quality, confidence, transparency, and mutual gain

DOMESTIC AND CROSS BORDER M&A

CORPORATE REORGANIZATION

DYNAMIC HEDGING OF FINANCIAL RISKS

NEW SOURCES OF FINANCING

NEW EQUITY, NEW INVESTORS

ADVISORY SERVICES

ADVISORY SERVICES

CAPITAL MARKETS (corporate bonds, securitization, project finance)

DERIVATIVES (forward, swap for both interest and FX rate)

INTERMEDIATION (private equity, venture capital)

NEW NEEDSNEW NEEDS PRODUCTS AND SERVICESPRODUCTS AND SERVICES

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CORPORATE SEGMENT GROWTH

COMPONENTS of LONG TERM GROWTH

DEMAND

Internal demand growth Gap in life-style FDI and Investment EU structural Funds Increase in disposable income

Export growth Selected comparative advantage Cost of labour Full market liberalisation

SUPPLYCapital FDI EU structural funds Domestic investment / saving

Productivity gains Privatisation and restructuring FDI Skilled work force Competitive challenge of EU market

Labour Unemployment Low cost of labour Limited wage pressures

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AGENDA

What is “New Europe”

Romanian Economic Landscape

Corporate Segment Landscape

Corporate Banking in Romania and in New Europe

Steps Ahead

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SIZE AND DEPTH – COUNTRY BREAKDOWN

Corporate lending is still the main lending activity, mainly working capital and investment Foreign ownership is largely dominant in all markets, but Turkey, Slovenia, and Romania Foreign currency activity is strong in Croatia, Bulgaria, Romania, and Turkey Banking penetration in terms of network is still possible in Romania, Bulgaria, and Turkey NPL is still an important quality problem, Romania, Croatia, Slovakia, and Bulgaria had substantial improvements, Poland and Turkey are recovering last economic crisis Market structure, concentration, and public sector dominance are heavily effecting loan pricing Different level of capital markets development leads to competition from other financial products, but deposit is still the main investment product

bln Euro 2002 PL TK CZ HU SK HR SL RO BG NE(12) EU

Market sizeGDP 199 192 74 70 25 24 23 48 17 702 9,161Population (mln) 38.6 70.2 10.3 10.1 5.4 4.4 2 21.7 7.9 178 377per capita GDP 5,167 2,731 7,173 6,884 4,673 5,411 11,717 2,232 2,098 3,950 24,300

Banking sectorTotal Assets 138.5 106 81.7 49.1 24.5 22.1 20 13.6 7.9 481 24,702

Total Loans 60.8 18.1 28.3 22.5 8.5 13 12 5.1 3.3 181 9,331Share of Corporate Loans % 53 73 52 73 68 55 74 80 76 71 48

Total Deposits 69.1 72.1 49.7 27.5 18.6 14.2 9.2 9.3 5.3 283 4,137Share of Corporate Deposits % 20 30 26 32 23 27 19 52 36 36 23

Tot Assets /GDP % 72 67 113 68 95 94 87 32 48 68 270Tot Loans/GDP % 32 12 39 31 33 55 52 12 20 26 102Tot Deposits/GDP % 36 45 69 38 72 60 40 22 32 40 122

Branches per million inhabitants 108 86 167 285 190 208 354 57 81 234 513Market share (asset) of foreign banks % 68 7 95 61 96 90 33 56 86 60 -

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ATTRACTIVE INVESTMENT PROSPECTS

Low Risk Moody’s Sovereign Rating/Country Risk High Risk

Ban

kin

g sy

stem

ris

k b

ase

d

on

Mood

y’s

BS

O

Romania

Bulgaria

Turkey

Brasil

Colombia

Peru

Argentina

EcuadorVenezuela

Uruguay

Indonesia

Bolivia

Russia

India

Philippines

Croatia

Slovakia

Korea Tailand

China

Estonia

Slovenia

Hungary

Mexico

Panama

Malaysia

Poland

Czeck Rep.Latvia

New Europe

Asia

Latin America

Source: Moody’s Investor Service Global Research, Rating List Ceilings for Foreign Currency, Bank Deposits, Long Term

Low Risk

High Risk

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BANKS’ – CORPORATE SEGMENT INTERACTION

GDP

growth

Banks’

Performance

and

Behaviour

Impact

on

Corporate

Segment

New product and services

Credit risk management upgrade

Support infrastructure development

Intermediation of FDI entry

Short term vs. long term behaviour

Corporate Social Responsibility

Inflow of capital, know-how, and new market behaviour

New segment and product development

Experience transfer, new practices and competencies (i.e. market segmentation, risk management)

IT and Human Resources enhancement

Support of growth and internationalisation development of local economy

Banks’ Performance and Behaviour Impact on Corporate Segment

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UNICREDITO ITALIANO

2002 KEY FIGURES

MKT CAP. - largest

Euro 23.4 bn

NET INCOME

Euro 1.801 mln

C/I RATIO

54.3%

PRE-TAX ROE

28.6%

ROE

17.2%

BRANCH NETWORK

4,176

Currently n. 10 European Bank by

market cap, n. 5 in the Eurozone

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Warsaw

Bratislava

Sofia

Zagreb

Bulbank – Bulgaria(1)

85.2% acquired in October 2000

Bucharest

Group Pekao – Poland(1)

53.2% acquired in May 1999

UniCredit – Romania(1)

99.8% acquired in May 2002Zagrebacka Group-Croatia Bosnia-Herzegovina(1) 81.9% acquired in March 2002

UniBanka – Slovakia(1)

76.3% acquired in October 2000

Pioneer

Koç Fin. Serv. – Turkey(2)

50% acquired in October 2002

Prague

Istanbul

Zivnostenka Banka Czech Rep.(1)

95.04%. Acquired in February 2003

UCI PRESENCE IN NEW EUROPE

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TODAY - 24 Branches, 8 in Bucharest and 16 in the major cities

END of 2003 - 32 Branches, 12 in Bucharest and 20 in the major cities

UNICREDIT ROMANIA NETWORK

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AGENDA

What is “New Europe”

Romanian Economic Landscape

Corporate Segment Landscape

Corporate Banking in Romania and in New Europe

Steps Ahead

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STEPS AHEAD

Privatisation

Restructuring

Portfolio clean-up

Foreign banks entry

M&A increase

TRANSITION MARKET ECONOMY NEXT STEPS

Positioning in the market

New market development

New product development

Competition

Efficiency

EU / EMU

BASLE II

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CORPORATE SEGMENT SUMMARY

Corporate customers behaviour is quite rational and little emotional. Their expectation on banking services’ quality is high, growing and long in excess of the average offer

They prefer standardized products and services for convenience, but they high appetite for customized solutions based on their needs

Corporate Banking business models and organizations adopted by many commercial banks have yet to meet these expectations, due to lack of customer focus

Overall service quality drives rational customers to choose top-tier relationships, in an over-banked market

Price is critical, but seldom the key factor

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UCR STRATEGY

Strategy of UCR is reinforced by consistent customer focus and by the synergies with the main share holder UCI. New Europe Banks are also essential for this purpose, given their distinctive role in the internationalisation process.

UCR, with it’s growing organizational structure, is targeting to become one of top banks in Romania. The key pillars of this strategy is build on four main success factors;

SPECIALIZED SALESFORCEFocused on customer needs……intensively trained

SMART CLIENT-CLUSTERINGTo target pool of high-value clients with more RMs’ time……and serve low-value clients with cost-effective models

CUSTOMER SATISFACTION-DRIVEN PROCESSES

To be the best in class when Quality is the selection criteria

INTEGRATED PRODUCT RANGEBlending product shelve and service quality…… supporting the relationship-building efforts through a wide range of solutions