Banking System The Czech Republic

1. 15th BACEE Central and East European and Bank and Country Conference 14-16November 2006, Budapest Banking System The Czech Republic

2. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Banking System overview – Reforms & Privatisation • 1990-1995, Period of Expansion: After transition to market economy several private financial institutions were establishedand foreign players entered the Czech market, by mid 90-ies the total amount of banks reached 55 out of which 34 were domestic. • 1995-2000, Period of Consolidation: The second half of 90-ies is characteristic for consolidation of the banks and transition of ownership in to foreign hands. The total number of banks fall to 40 out of which only 14 remained domestic. • 1998 - today: is marked by privatization of state owned banks: cleaning portfolios of Sporitelna, Komercni Banka IP Banka, etc. by transferring problem loans to Ceska Konsolidacna Banka and subsequent sale to foreign investors • State ownership in banking sector drops dramatically • Concentration of banks is growing and it will be further fuelled by merger of HVB CR and Zivnostenska Banka

3. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Structure of the banking sector Source: CNB

4. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Structure of the banking sector: Assets I. Note: Calyon S.A. changed its subsidiary into a branch on 1.11.2005 Bank of Tokyo-Mitsubishi UFJ NV set up a branch in 2006 Source: CNB, Raiffeisen Research

5. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Structure of the banking sector: AssetsII. Source: CNB

6. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Structure of the banking sector: Assets III. Source: CNB

7. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Banking sector development: Assets I. Source: CNB

8. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Banking sector development: Assets II. Source: CNB

9. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest TA & Market share Source: CNB

10. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Ownership of Top-10 banks • CSOB - KBC, Belgium • Ceska Sporitelna- Erste Group, Austria • Komercni Banka - Societe Generale, France • HVB Bank - Unicredito, Italy • Commerzbank - Commerzbank, Germany • Raiffeisenbank - Raiffeisen Group, Austria • Citibank - Citi Group, USA • GE Money Bank - General Electric, USA • ING Bank - ING, Netherland • Zivnostenska Banka - Unicredito, Italy Source: CNB, Raiffeisen research

11. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Credit boom Sector is focused on retail market which has by provided ground for solid growth as a result of the favourable demographic factors and historically low interest rates. Household and mortgage loans in 2005 stabilized somewhat after a boom in 2004. Source: CNB, Raiffeisen Research

12. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest CZ and its Peers:Lending rates Source: CNB

13. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest CZ and its Peers:Loans to the private sector Source: BIS, National Central Banks

14. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest CZ and its Peers: Household Loans I. • CZ is advanced in terms of legal and institutional reforms • boost 2nd highest GDP per capita in CE (see chart to right) • bank restructuring and privatization is largely completed and the sector is characterised by high market shares of foreign owned banks • the overall size of the banking sector is still below the Euro-zone level • similarly to the economy the banking sector is also approaching the EU level Credits to households vs. GDP/capita CZ in 2004 Source: CNB, Raiffeisen research

15. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest CZ and its Peers: Household Loans II.

16. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Loan quality (in CZK'mln.) Source: CNB

17. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest CZ and its Peers: Loan quality Source: CNB

18. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Structure of the banking sector: Liabilities Source: CNB

19. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Banking sector development: Liabilities I. Source: CNB

20. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Banking sector development: Liabilities II. Source: CNB

21. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Equity I. Source: CNB

22. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Equity II. Source: CNB

23. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest CZ and its Peers: Capital Adequacy Source: CNB

24. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Ratings of selected Banks in 11/2006 Source: Website of Moody’s, Fitch and S&P

25. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Banking system profitability indicators Source: CNB

26. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Banking system profitability indicators Source: CNB

27. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Recent developments I. • moderate growth of commercial banking sector in H1-2006 • booming economy has fuelled consumer spending -> growth in loans • loan/deposits, loans/assets and loan/GDP ratios continue to move upwards • <-> HOWEVER this growth remains low on an international comparison (e.g. loan/asset ratio of 40.9% is the second lowest in CEE) • banking sector is entering a level of maturity • the bond portfolio has recently declined • Bank of Tokyo-Mitsubishi opened a branch in in April, this year • Österreichischer Gewerkschaftsbund (OGB) is to sell its financial group BAWAG P.S.Ks -> Czech BAWAG to be sold • Moody's announced on 1 November to increase the long-term foreign currency-denominated obligations rating of Czech Export Bank (CEB) from A1 to Aa1

28. 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Recent developments II. • Raiffeisen International to focus on asset management and insurance in CE incl. CZ • Antimonopoly Office and the Czech NationalBank approved Komercni Banka aquiring 60% stake in construction savings bank Modra Pyramida on 13 October • Raiffeisenbank acquires 100% in Czech eBanka, purchase price was set at EUR 130mn (CZK 3.7bn), merger will be legally and operationally completed by 2008 • Ceska Sporitelna (CS) implements a new strategy aiming at strengthening its position as the leader of the retail banking segment by e.g. reducing client liability in the event of a lost card and by increasing the number of investment consultants at its branches, Jack Stack, CEO said on 10 October • CS has to cancel anonymous bank books within the fight against money laundering, however people have just withdrawn CZK 570 mln. in Q3-2006 and still have CZK 4.45bln. in these books

29. Strengths Concentration of banks 95 % of operations in foreign hands -> improved risk management Opportunities Retail/consumer lending (still). Mutual fund distribution Asset management Weaknesses Rapid expansion mainly targeted households -> DOUBTS about resilience of banks’ credit portfolios to macroeconomic shocks Market is maturing Threats Possible further consolidation may put smaller banks at a disadvantage 15th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Outlook