Agenda

1. Emergence of Asia in the Global Banking SystemFICCI- IBA Conference October 5-7, 2005-Hotel Hilton Towers, Mumbai

2. Asia China and City Commercial banks Opportunities and Challenges Agenda

3. Regulations EU Expansion to 25 nations Repeal of Glass Steagall Act Hong Kong Sovereignty to China EURO Sarbanes Oxley Spitzer & Banks Spitzer & Insurance Corporate Crises Equitable Life Crisis WorldCom Collapse of Barings Parmalat Enron Rapid uptake of telephone / internet banking Technology Electronic trading 2000 2005 1995 Products Credit / Equity Derivatives Rapid uptake in retail hedge funds Socio-Economic 9/11 Far East Crash Dotcom Boom Global crash in equities Major Industry Events 2000

4. Asia Asia Area: 30% of World’s Population: 60% of World’s Japan GDP: USD 4669.6 bn Area: 377,899 sq km Population: 127,600,000 Bangladesh GDP: USD 56.3 bn Area: 147,570 sq km Population: 129,300,000 South Korea GDP: USD 680.7 bn Area: 99,601 sq km Population: 48,200,000 China GDP: USD 1,681.3 bn Area: 9,596,960 sq km Population: 1,306,313,812 Hong Kong GDP: USD 165.7 bn Area: 1,098 sq km Population: 6,803,100 India GDP: USD 669.9 bn Area: 3,287,590 sq km Population: 1,080,264,388 Singapore GDP: USD 106.8 bn Area: 682.3 sq km Population: 3,500,000 Thailand GDP: USD 163.5 bn Area: 514,000 sq km Population: 65,240,000 Source: Economist Intelligence Unit

5. Asia (contd.) Asia’s demographic dividend - Dependency Rates* • Working – age Asians driving consumption patterns Source: UN (* People aged under 15 and over 65 as % of people aged 15-65) Growth Rate Per Capita GDP (% per year) Gross Domestic Savings (% of GDP) Source: Asian Development Outlook Source: Asian Development Outlook

6. Domestic Consolidation Attract Cross-border investments Regional/global expansion Stages of Consolidation Market Characteristics Government Involvement Drivers India Taiwan Japan Korea Australia North America China Indonesia New Zealand Malaysia Thailand Singapore Hong Kong Developed European Countries • Improved bank structure • Fewer but strong banks; reduced risk for investors • Fragmented Domestic Market • Large no. of small and medium-sized banks • Home market saturation • Implementation of international banking standards, e.g. Basel Accord, corporate governance, tax laws and accountancy transparency • Implement deregulation programs • Develop capital markets, e.g. debt markets • Policies and guidelines to encourage domestic consolidation • Schemes to restructure national and state-owned banks • Changes to banking regulations to reduce cross-holding • Increase capital adequacy ratio • Initiate deregulation initiatives • Economic growth requiring additional capital from foreign investors • Competition • Increase shareholder value • Seeking growth opportunities • Competition • Asia Financial Crisis • Bank Failures • High domestic economic growth Asian Banking Industry – Present Status Source: Deloitte – The Changing Landscape of Asian Banking

7. Some key parameter trends in Asian banking Loan Growth (percentage change YoY) Volume • Loan Growth • Deposit Growth • Loans to deposit ratio Loan-to-Deposits Ratio (percentage) Deposit Growth (percentage change YoY) Source: Smith Barney, Citigroup Result of intense competition and low credit demand, with different countries in different credit cycles

8. Some key parameter trends in Asian banking Bank Return on Assets (percentage) Profitability • Profitability in Asia’s biggest banks smartly bounced back in 2004, as compared to losses in 2003 • ROA and ROE have witnessed positive uptrend • Non-interest revenue is increasing Source: IMF Bank Return on Equity (percentage) Information not available for Singapore and Indonesia in 2000 Source: IMF

9. Some key parameter trends in Asian banking Non-performing loans to total loans (percentage) Asset quality • Asset Quality continues to improve • Banking reforms and restructuring schemes are having its effect Source: IMF Banking provisions to non-performing loans (percentage) Source: IMF

10. Some global banks’ exposure to the region - HSBC Source: Smith Barney, Citigroup

11. Some global banks’ exposure to the region – Standard Chartered Source: Smith Barney, Citigroup

12. Asia China and City Commercial banks Opportunities and Challenges Agenda

13. The Chinese economy has seen strong growth 1949 – 1978 Post 1978 Rmb11,725 bn WTO The “Great Leap Forward” Cultural Revolution Economic reform begins China’s GDP 1982 1970 1973 1976 1979 1985 1988 1994 1997 2000 2003 1949 1952 1955 1958 1961 1964 1967 1991 Source: National Bureau of Statistics of China, China Statistical Yearbook

14. China Banking Sector China Banking People ’ s Bank of Regulatory China Commission Credit State Policy Commercial (a) Cooperatives Others Banks (3) Banks (~336) (~30,000) State - owned Joint - stock City Rural Urban Credit Rural Credit Foreign Banks Commercial Commercial Commercial Commercial Cooperatives Cooperatives (~200) Banks (4) Banks (12) Banks (112) Banks (8) (~2,000) (~28,000) Overview of the Chinese banking sector Total assets: Rmb 18.35 trillion Total assets: Rmb 5.25 trillion Total assets: Rmb 1.80 trillion Notes: Number of banks in brackets Assets as at 30 June 2005 (a) Includes postal savings and other non-banking financial institutes Source: KPMG analysis of publicly available information

15. City Commercial Banks China banking industry share by assets 2004 • Opportunities for foreign investors • Relatively small investment • Foreign investors can’t buy control • City Commercial Banks are also looking for something • Investing is a relatively easy – but lengthy – process • Which banks are left? • What issues have foreign investors faced? • Strategic alignment • Local government control • Key operating personnel Source: Asian Wall Street Journal; China Banking Regulatory Commission website China’s banking assets 2000-2004 Source: KPMG Analysis, China’s city commercial banks

16. Emerging Trends • Improved oversight of the banking system • Formation of Chinese Banking Regulatory Commission in early 2003 • Steps taken for asset disposal and recapitalisation • USD 170 bn of NPLs transferred to ARCs by March 2004 and USD 60 bn worth of assets disposed off • Reducing NPL Ratios • NPL ratio of state-owned commercial bank was 16 percent in 2004 (Source: China Banking Regulatory Commission website May 2005) • Government has planned injection of capital • NPL ratios have been decreasing, but are still some way off international levels • Better Capital Adequacy • Considerable progress made by Chinese banks in meeting Basel I Capital Adequacy of 8% • Abundant growth in car and housing loan and bank - card business

17. Emerging Trends contd. Foreign strategic investors invited to take stakes in large banks • August 2005 Goldman Sachs, American Express, Allianz took a combined stake of 10% (worth USD 3 bn) in state-owned bank industrial and Commercial Bank of China (ICBC) • July 2005 Temasek invested USD 1 bn in China Construction Bank • July 2005 Royal Bank of Scotland, Meryll Lynch and Li Ka-shing bought 10% of Bank of China (BOC) • June 2005 Bank of America invested USD 3.1 bn in China Construction Bank (CCB)

18. Asia China and City Commercial banks Opportunities and Challenges Agenda

19. Opportunities and Challenges People management Corporate governance Risk and capital management Efficiency and cost management Growth & Business Development

20. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Presenter’s contact detailsRussell Parera, National Industry Director, Financial ServicesKPMG India+91 (22) 2491 3030rparera@kpmg.comwww.in.kpmg.com