1

Czech & Slovak Republics

Jaromír SladkovskýDirector of Group Retail Marketing

Prague

April 19, 2004

Dynamics of BankingDynamics of Banking SectorSector

2

Czech Republic

Slovakia

International Comparison

3

Banking Sector in CR

Bank Deposits & Retail Savings

Bank Loans & Retail Lending

Sector Profitability

4

MUTUAL FUNDS

24,3 26,8 26,7 27,7

3,44,1 5,5 7,3

1,41,8 2,7

3,5

2000 2001 2002 2003

BUILDING SAVINGS

SHIFT FROM BANK DEPOSITS TO MUTUAL FUNDS WILL CONTINUE DUE TO LOW INTEREST RATE ENVIRONMENT

Source: Czech National Bank (CNB) Flat Exchange rate used as of Dec 31, 2003

27,7 30,9 32,2 35,0

10,9 10,4 12,013,15,9

7,212,4

10,8

2000 2001 2002 2003

COMPANIES

HOUSEHOLDS

OTHERS

EUR billion (CAS)

BANK DEPOSITS

PRIVATE FINANCIAL ASSETS*

BANK DEPOSITS

44,5 48,556,6 58,8

29,132,7

35,038,5

In the medium term:

• Total bank deposits are expected to grow at 4-6%

• Corporations should be major contributor to total deposit growth

• Household deposits should show stable growth at 2-4% despite low interest rate environment

In the medium term:

• Total bank deposits are expected to grow at 4-6%

• Corporations should be major contributor to total deposit growth

• Household deposits should show stable growth at 2-4% despite low interest rate environment

• Total household savings are expected to grow by 6-8%, i.e. 2-3% above nominal wages

• Current shift from bank deposits to mutual funds will continue

• Rapid growth of building savings should slow down due to lower government subsidy from 2004

• Total household savings are expected to grow by 6-8%, i.e. 2-3% above nominal wages

• Current shift from bank deposits to mutual funds will continue

• Rapid growth of building savings should slow down due to lower government subsidy from 2004

*) without pension funds and life insurance reserves

5

0,7 1,1 1,62,41,0

1,21,4

1,9

0,60,9

1,6

1,9

0,6

0,5

0,3

0,2

2000 2001 2002 2003

LOANS PROVIDED TO INDIVIDUALS WILL REMAIN A KEY GROWING DRIVER OF TOTAL LOANS IN THE FUTURE

2,9 3,6 4,9 6,5

23,117,1 14,0 14,0

8,1

10,110,2 10,3

2000 2001 2002 2003

COMPANIES

HOUSEHOLDS

OTHERS

PRIVATE FINANCIAL LIABILITIES

BANK LOANS

OTHER LOANS*

BUILDING LOANS

MORTGAGES

CONSUMER LOANS

*) includes overdrafts, FX loans, investment loans etc.

34,030,8

29,030,8

2,93,6

4,9

6,5

Source: Czech National Bank (CNB) Flat Exchange rate used as of Dec 31, 2003

EUR billion (CAS)

In the medium term:

• Total loans are expected to grow on average at 6-8% a year

• Loans provided to households will remain a key growing driver of total loans (about 20% a year)

• Loans provided to corporations and SME should show a reverse trend

In the medium term:

• Total loans are expected to grow on average at 6-8% a year

• Loans provided to households will remain a key growing driver of total loans (about 20% a year)

• Loans provided to corporations and SME should show a reverse trend

• Mortgages will keep its high growth at 20-30% a year

• Building loans should keep its high growth as well

• We expect the growth of consumer loans to slow down (recent evidence)

• Mortgages will keep its high growth at 20-30% a year

• Building loans should keep its high growth as well

• We expect the growth of consumer loans to slow down (recent evidence)

6Source: CNB

Net interestincome

Net feeincome

DESPITE THE DROP IN INTEREST RATES, THE BANKING SECTOR MAINTAINED SOLID PROFITABILITY LEVEL

• Profitability of the banking sector was driven by several factors: stable interest income, growing fee income, better quality of credit portfolio and cost management

• Net fee income showed double digit growth over the past three years

• Banks increasingly focused on cost management (e.g. total bank staff decreased from 44k in 2000 to 39k in 2003)

• Profitability of the banking sector was driven by several factors: stable interest income, growing fee income, better quality of credit portfolio and cost management

• Net fee income showed double digit growth over the past three years

• Banks increasingly focused on cost management (e.g. total bank staff decreased from 44k in 2000 to 39k in 2003)

1 543 1 728 1 697 1 666

2000 2001 2002 2003

Net profit

494 648 741 802

2000 2001 2002 2003

432 525926 926

2000 2001 2002 2003

OperatingIncome*

2 345 2 716 2 808 2 777

2000 2001 2002 2003

EUR million (CAS)

*) Other income includes income from financial operations (FX, derivatives, securities etc.) Excludes Other Expenses and Other Income

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Banking Sector in SR

Bank Deposits & Retail Savings

Bank Loans & Retail Lending

Sector Profitability

8

MUTUAL FUNDS

7,8 8,5 8,5 8,1

1,01,0 1,0 1,00,10,2 0,4 0,9

2000 2001 2002 2003

BUILDING SAVINGS

RECENT FISCAL REFORMS MAY IMPACT THE GROWTH OF DEPOSITS (AND ITS STRUCTURE) IN SLOVAKIA

Source: National Bank of Slovakia (NBS) Flat Exchange rate used as of Dec 31, 2003

8,8 9,5 9,5 9,1

3,43,9 4,5 5,4

3,13,6 4,1

5,0

2000 2001 2002 2003

COMPANIES

HOUSEHOLDS

OTHERS

16,519,4

14,818,7

BANK DEPOSITS

PRIVATE FINANCIAL ASSETS*

BANK DEPOSITS

8,99,7 9,9 10,1

EUR billion (SAS)

In medium term:

• Total bank deposits are expected to grow at 3-5% on average a year

• Household deposits are likely to remain stable (maximum 1-2% growth a year can be expected)

In medium term:

• Total bank deposits are expected to grow at 3-5% on average a year

• Household deposits are likely to remain stable (maximum 1-2% growth a year can be expected)

• Total household savings will likely grow by 2-4% a year due to slow growth of real wages in SR

• Current shift from term deposits to mutual funds will continue with decreasing interest rates

• Building deposits stay flat (this product never reached the same level of attractiveness as in CR)

• Pension funds are expected to be a key driver of growth after 2004

• Total household savings will likely grow by 2-4% a year due to slow growth of real wages in SR

• Current shift from term deposits to mutual funds will continue with decreasing interest rates

• Building deposits stay flat (this product never reached the same level of attractiveness as in CR)

• Pension funds are expected to be a key driver of growth after 2004

*Excluding Pension funds (0.27 billion EUR in 2003) and Life insurance (1.14 billion EUR in 2003)

9

0,0 0,1 0,30,60,7

0,80,8

0,90,1

0,10,2

0,2

0,20,2

0,2

0,4

2000 2001 2002 2003

VOLUME OF LOANS SHOULD GROW AFTER BAD LOAN TRANSFERS REALIZED IN 2001 AND 2002

1,1 1,3 1,5 2,1

8,26,1 5,9

6,2

0,6

0,9 1,21,5

2000 2001 2002 2003

COMPANIES

HOUSEHOLDS

OTHERS

PRIVATE FINANCIAL LIABILITIES

BANK LOANS 9,9

8,2 8,59,8

OTHER LOANS*

BUILDING LOANS

MORTGAGES

CONSUMER LOANS

*) includes overdrafts, FX loans, investment loans etc.

1,11,3

1,5

2,1

Source: National Bank of Slovakia (NBS) Flat Exchange rate used as of Dec 31, 2003

EUR billion (SAS)

In medium term:

• Total bank loans are expected to grow by 6-8% a year

• Loans to companies should grow at 5-6% a year due to higher banks’ willingness to provide loans to small and medium enterprises

In medium term:

• Total bank loans are expected to grow by 6-8% a year

• Loans to companies should grow at 5-6% a year due to higher banks’ willingness to provide loans to small and medium enterprises

• Growth of total household loans at around 11-13% a year in the medium-term can be threatened by increasing uncertainty resulting from recent government reforms

• Volume of mortgages is expected to grow at 25-30% a year

• Growth of total household loans at around 11-13% a year in the medium-term can be threatened by increasing uncertainty resulting from recent government reforms

• Volume of mortgages is expected to grow at 25-30% a year

10Source: NBS

Net interestincome

Net feeincome

BANKING SECTOR IN SLOVAKIA HAS MUCH HIGHER PORTION OF INTEREST INCOME THAN CZECH BANKING SECTOR

• Net interest income covers about 70% of total operating income

• Net fee income is still low due to the strong competition on the Slovak market

• Improvement in cost efficiency was visible in 2002-2003 when the bank staff was reduced by 9%

• It is expected that the Slovak banking sector profitability will further decrease in the medium-term due to lower NII and stagnant fee income due to high competitiveness

• Net interest income covers about 70% of total operating income

• Net fee income is still low due to the strong competition on the Slovak market

• Improvement in cost efficiency was visible in 2002-2003 when the bank staff was reduced by 9%

• It is expected that the Slovak banking sector profitability will further decrease in the medium-term due to lower NII and stagnant fee income due to high competitiveness

520 573 712 729

2000 2001 2002 2003

Net profit

104 131 141 168

2000 2001 2002 2003

107 221 287 272

2000 2001 2002 2003

OperatingIncome

743 809 1 023 969

2000 2001 2002 2003

EUR million (SAS)

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International Comparison

Size of the Banking Sector

Credit Structure

Retail Lending

Loans to Deposits

Competitiveness

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SIZE OF THE BANKING SECTORS Banking assets as % of GDP

0% 50% 100% 150% 200% 250%

Euro Area

Czech Republic

Slovakia

Source: ECB, IMF

The Czech and Slovak banking sector is still relatively underdeveloped compared to EU countries in terms of total banking assets as % of GDP.

While most of EU countries have a banking assets/GDP ratio over 150%, the Czech and Slovak banking sector was around 85% in 2002 and 2003.

The Czech and Slovak banking sector is still relatively underdeveloped compared to EU countries in terms of total banking assets as % of GDP.

While most of EU countries have a banking assets/GDP ratio over 150%, the Czech and Slovak banking sector was around 85% in 2002 and 2003.

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consumer3%

housing18%

other**7%

companies72%

STRUCTURE OF CREDITS COMPARED TO EURO-ZONELoans provided to private companies and households*

consumer 9%

housing21%

other**5%

companies65%

Source: CNB, NBS, ECB

consumer7%

housing36%

other**10%

companies47%

CZECH REPUBLIC27,5% LOANS/GDP

SLOVAKIA28,7% LOANS/GDP

EURO-ZONE90,3% LOANS/GDP

Household credits make only half of volume of loans provided to companies in the CR. In Slovakia, this ratio is even lower.Household credits make only half of volume of loans provided to companies in the CR. In Slovakia, this ratio is even lower.

*) loans to government and financial institutions are excluded**) include loans to individual enterprises, credit cards, overdrafts, FX loans, investment loans etc.

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THE GROWTH POTENTIAL OF THE MARKET IN RETAIL LENDINGHousehold Credits 2003 (% of GDP)

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

Eurozone Czech Republic Slovak Republic

Housing Consumer Other*

Source: ECB, CNB, NBS *) include loans to individual enterprises, credit cards, overdrafts, FX loans, investment loans etc.

48%

10% 8%

Total retail loans including individual enterprises still capture only 8-10% of GDP which is five times less than the average of the Euro-zone.Total retail loans including individual enterprises still capture only 8-10% of GDP which is five times less than the average of the Euro-zone.

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COMPARISON BETWEEN BALANCE SHEET STRUCTURE IN EU COUNTRIES AND CZECH AND SLOVAK BANKSBanking Loans/Deposits

Source: ECB, Patria

46%

60%

101%

140%

93%

143%

64%

0% 20% 40% 60% 80% 100% 120% 140% 160%

2003 Slovakia

2003 Czech Rep.

2003 Eurozone

2003 Spain

1986 Spain

2003 Portugal

1986 Portugal

16

0% 30% 60% 90%

2002 Slovakia

2003 Slovakia

2002 Czech Rep.

2003 Czech Rep.

Germany

US

Spain

France

Italy

Norway

UK

Sweden

Canada

The Netherlands

Belgium

Credits

Deposits

OVERVIEW OF MARKET CONCENTRATION2002 Market Share of TOP 4 Banks in loans and Deposits

Source: CGE&Y analysis, CNB, NBS, Regulatory reporting of top banks in CR and SR, CSOB