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Erste Group –

9th Capital Markets Day

21 November 2019, Vienna

Serbia/Erste Bank Serbia: The organic growth champion

Slavko Carić, CEO Erste Bank Serbia

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Disclaimer –

Cautionary note regarding forward-looking statements

2

• THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND

NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE

SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY, COMPLETENESS OR CORRECTNESS OF THIS

INFORMATION OR OPINIONS CONTAINED HEREIN.

• CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE

EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON

MANAGEMENT’S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS

AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO

DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS.

• NONE OF ERSTE GROUP OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALL HAVE

ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER

ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISE ARISING IN

CONNECTION WITH THIS DOCUMENT.

• THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE

FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALL FORM THE BASIS OF OR BE RELIED

UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER.

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Presentation topics –

The organic growth champion

3

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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The economic upswing –

Serbia has enjoyed political stability & EU-oriented strategy since 2012

Remarkably improved economy… ...driven mainly by investments

4

GROWTH

GDP per capita (EUR)

6,500

4,700

3,500

+39%

2006

2012

2019e

20.9

23.9

10.7

Unemployment rate (%)

-55%

3.4

5.05.6

7.4 7.4

2.0

3.5

2012 2013

6.1

2014 20162015 2017 2018 2019e

Foreign direct investmentsSource: Erste Group Research

in % of GDP

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The organic growth champion –

EBS has become a significant player in the Serbian market

EBS continuously outgrows the market Higher market shares in every segment

5

GROWTH

1.8 1.6

6.6

5.0

Customer loan

market share

Customer deposit

market share

in %2005

Q3 191,370

265 276361

0

200

400

600

800

1,000

1,200

1,400

2005 2010

683

2015 2019

100100

416

EBS total asset growth (2005=100)

Serbian market total asset growth (2005=100)

Top 10 bank in Serbia

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Progressive

development

Business transformation

Initial transformation

LIFT 1.0

(Activities related to introducing the new system)

The IT quantum leap –

Moving from legacy core banking system to Temenos platform

• Temenos 24 platform - a state-of-the-art, easily adaptable core banking system

• New core IT system by H1 2021

• Aim is to have a leading role in the digital transformation of financial services in Serbia

• EBS seizes the central role in its customers’ financial lives by becoming a truly customer-centric organisation

6

DIGITAL

LIFT 2.0

(Activities related to enhancing the

functionalities introduced within LIFT 1.0)

20222021

2020

2019

Key steps

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Presentation topics

7

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Introduction –

Modern approach to branch design

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• Modern approach to branch design: improving customer experience by simplifying design, removing friction, integrating new technologies and trying to introduce more consumers to alternative digital delivery channels

• EBS redesigned three state-of-the-art branch offices in Belgrade, Novi Sad and Subotica to reflect consumer needs while providing the most efficient and rewarding customer experience

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Presentation topics

9

• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Economic environment –

Balanced growth with more room for convergence

Key developments

• Robust recovery since the

breakup of Yugoslavia

• Free market- and pre-accession

agreements with EU attracted

more investors and credit

agencies

• Large FDI inflow significantly

contributed to recovery and

industry profile change

• Growth shall continue to be

driven by domestic demand,

investments, business and

tax incentives

• Convergence potential still

very high at 3.5-4% estimated

mid-term growth

GDP

10

Labour market

Source: Erste Group Research

3.0

4.45.0

6.5

2015

5.5%

2005

-2.7%

3.3%

1.8%

2009 2019e

20.819.2

17.7

10.7

20102005 2019e2015

GROWTH

GDP capita (in EUR thsd)

Real GDP growth

Unemployment rate

in %

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Economic environment –

Prudential behaviour opens room for investments

Key developments

• Fiscal policy is expected to

remain prudent

• Government expected to

engage more in large investment

programs

• Exports and FDI continue to be

well diversified across sectors

• Fiscal discipline and prudential

market behaviour bring down debt

levels continuously

• Large import component

continues to pressure current

account

Economic balances

11

Public & external debt

Source: Erste Group Research

1.1

-4.3-3.5

0.3

-8.0

-6.5

-3.4

-6.9

2005 2010 2019e2015

Government balance

Current account balance

46

39

75

5056

75

83

60

2005 2010 2015 2019e

External debt

Public debt

GROWTH

in % of GDP in % of GDP

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Economic environment –

Country risk significantly fades

Key developments

• Country risk has faded

significantly since 2004 when

Serbia received its first credit

rating

• Serbia currently waits for its first

ever upgrade to investment grade,

potentially to be confirmed in late

2020 or early 2021

• Recent debt issues on domestic-

and foreign markets attracted high

demand

• Central Bank under pressure to

ease more due to low inflation and

external uncertainties

Government bond yield

12

Short-term interest rate

Source: ThomsonReuters, Erste Group Research

0

2

4

6

8

10

12

14

20172013 2015 2019

5y avg rate

0

2

4

6

8

10

12

2013 201920172015

3m BELIBOR

GROWTH

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Banking market –

From zero to hero

Key developments

• Serbian banking sector has

propelled since the political and

economic changes in 2005

• Consolidation wave has been in

full swing for three years, with

more M&A activities ahead

• Credit activity mostly driven by

retail business, while corporate

lending has picked up recently

• Low interest rates environment

puts pressure on margins,

however, sector profitability

remains high

• NPLs have been substantially

reduced since 2015

• Capital adequacy ratio at

historical highs

Market growth

13

Penetration

Source: National Bank of Serbia

24

4945 44

7

17 1720

2019e2005 2010 2015

Customer loans

Household loans

-10

0

10

20

30

40

50

60

2005 Q3192010 2015

Customer deposit growth

Customer loan growth

GROWTH

in % in %

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Presentation topics

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• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Customer loans –

Highest growth among Serbian banks

Key developments

• EBS has had the highest organic

growth in Serbian banking sector

• Market CAGR 2015-2018: 5%

• EBS CAGR 2015-2018: 19%

• Ranked 6th on the market based

on customer lending

• Retail lending driven by housing

and cash loans

• Corporate lending driven by

commercial loans with main

contributor being SME segment

Volume evolution

15

Market shares

0.7

3.0

4.2

6.5

7.1

1.72.2

4.4

6.1 6.2

20152005 2010 Q3 192018

Retail loans

Corporate loans

GROWTH

0.1

0.4

0.7

1.2

1.4

2005 2010 2015 2018 Q3 19

Customer loans

in EUR bn in %

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Customer deposits and asset management –

Continuously strong growth

Key developments

• Position of a challenger bank

has its price tag where entrance

card in client relationship is

mostly in loan business while

full client business is missing

at the beginning

• Market CAGR 2015-2018: 10%

• EBS CAGR 2015-2018: 19%

Development of volume

16

Market shares

1.7

2.3

3.8

4.9 5.0

2005 2010 20182015 Q3 19

Customer deposits

0.1

0.5

0.6

1.0

1.1

Q3 192005 2010 2015 2018

Customer deposits

GROWTH

in EUR bn in %

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Net interest income and fee income –

EBS achieves high NII growth driven by significant volumes

Key developments

• Net interest income driven by constant volumes growth

• Significant decline of NIM

• Drop of market interest rates

• Dominance of housing loans

• Fee and commission income growing in line with market

NII & NIM

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Net fee and commission income

GROWTH

1.9

10.6

12.613.4

10.5

201520102005 2018 1-9 19

30

45

5747

6.9%

5.9%

2018

3.8%

2010

3

3.8%

2005

3.8%

2015 1-9 19

Net interest income (in EUR m)

Net interest margin

in EUR m

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Operating result –

Relatively high CIR driven by project costs in 2019

Key developments

• Main driver of operating income has been portfolio growth withits impact on NII as well as growth of net fee and commission income

• Operating expenses are higher in last two years mostly due to investment in bank transformation

• CIR has increased in 2019 due to projects cost

Operating income & expenses

18

Operating result & CIR

7

43

61

75

62

11

32

39

50

42

1-9 192005 2010 20182015

Operating income

Operating expenses

-4

11

22

26

20

74%

2005

161%

2018

68%66%

2010 2015 1-9 19

64%

Operating result (in EUR m)

Cost/income ratio

GROWTH

in EUR m

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Asset quality and risk costs –

Improvements in all aspects

Key developments

• Positive macroeconomic environment led to decreasing risk densities

• High recoveries and NPL sales over last years

• IFRS 9 and enforced write offs by Central Bank

• NPL ratio at historical low with coverage above 100%

• Improved rating models and underwriting procedures led to overall improvement

Asset quality*

19

Risk costs

9

11

1

2012 2015 1-9 19

68.475.2

21.6

12.0% 10.5%1.5%

84.1%

129.0%

Q3 192012

88.4%

2015

NPL ratio

NPL (in EUR m)

NPL coverage*Asset quality based on segment reporting

in EUR m

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Net result –

Sustainable profitability

Key developments

• Recognised as a systemically important bank, EBS has been achieving record business resultsfor several consecutive years

• Growth of assets

• Increase of NII (despite decline of NIM)

• Favourable risk cost development since 2015

• Optimisation of funding

• Net profit has been achieved for 12 consecutive years

Net result evolution

20

-8

-28

0

8

4 3

811

9

2

10

17

2225

17

2013 1-9

19

2005 201120092007 20172015

GROWTH

in EUR m

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Presentation topics

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• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Digital snapshot –

Digital products have gained popularity

Key developments

• Continuous growth in numbersof digitally active users

• 24% YoY growth in 2017

• 28% YoY growth in 2018

• Noticeable shift towards usage of mobile banking over past few years

• Continuous increase in share of digitally sold products

• 8% in 2018

• Migration to new IT system will bring major improvements of digital channels

Number of branches

22

Number of digital users

2015

31

Q3 19

68

DIGITAL

66

73

90

2005 2009 Q3 19

Active digital users

2015 Q3 19

2

31

Active mobile banking users

in thsd

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Digital snapshot –

New IT system will lead to many improvements

Main focus before implementing new IT system

• Increase in share of digitally active clients

• In-branch education of clients and investing effort in migration to digital channels

• Continuous focus on education of employees and raising digital awareness

• Further enhancement of digital sales capabilities

• Improvement of prospect management

• Introduction of video-legitimation (E2E online on boarding)

• Expanding existing product offering on digital channels

New possibilities by migration to new IT system

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• Migration to new IT system will bring major improvements of digital channels

• E2E online sales processes

• Scalability & integration

• Opportunities for cooperation with fintechsthrough open APIs

• Potential for new & innovative services in payments area

DIGITAL

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Presentation topics

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• Executive summary

• The growth story

• Intro

• The macro story

• The micro story

• The digital story

• Conclusion

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Conclusion –

Outlook Serbia/Erste Bank Serbia

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Erste Bank

Serbia

Digitalisation

Macro

Banking market

• EBS to remain one of the top banks in Serbia

• Sustainable profitability to continue

• Retail segment will stay very vivid

• New boost expected to come from corporate segment

• Domestic demand expected to remain the main driver

• Rapid convergence towards EU to continue

• Further increase of digital activity of client base

• New IT system to unleash new innovative features & services