Rapid Growth in the Retail Business Aris Bogdaneris, Board Member October 2005 Retail Banking: Rapid Growth Now and in the Future Customers (mn) 5.6 Pre-tax profit ( mn) 3.3 5.0 42.5 57.8 2.0 Average Assets Retail Balances ( bn) 6.5 2002 2003 (64.3) (23.8) Highlights* 2004 HY 2005 Over 875,000 new customers added year-to-date through to August; Total retail customer base at 5.9 million (approximately 8.9 million with Aval) 1.0 2.0 4.5 RI is the top 3 retail bank (by retail lending volumes and/or deposits) in Slovakia, Croatia, Serbia, Romania, Kosovo, Albania, Bosnia & Herzegovina, Belarus, Ukraine and Moscow region Projected Pre-tax Income of over 100 million in 2005 * Not including Bank Aval otherwise stated Bank Aval to add 3 million customers; 1 billion in loans, 1,400 branches and strong third party auto and retailer relationships in the Ukraine Slide 74 Investor's Handbook Rapid Growth in Retail Business Page 39
An Extensive Portfolio Requiring Different Growth Strategies High Market Growth (%) Low Market Penetration Under-banked market many retail customers with no account Small volumes high growth rates Ukraine, Russia, Albania Capture Market! Grow Share! Market Maturation Mature client base Volume grows only with inflation Product modification/adaptation Italy, Spain, France, Austria Optimize Model; Fine Tune Market Expansion Product usage grows (lending gains importance) Share of bankable population growing Romania, Bulgaria, Serbia, Poland Build Share! Launch Products! Market Intensification Number of customers not growing Volumes growing fast Product usage increasing Czech, Hungary, Croatia, Slovakia Exploit Clients; Cross Sell Low Asset Growth ( )( High Slide 75 Customer Expansion Customer Focus Changing... Customer Groups and Customer Base is Expanding New Customers (January - August) Traditional RI Base HNWI Prime Near Prime Hungary Poland Slovenia Czech Slovakia 134,324 629,252 876,655 New Customers Russia Ukraine Belarus 113,079 Sub Prime Size of the group EU5 SEE CIS Romania Albania Serbia Bosnia Bulgaria Croatia Slide 76 Investor's Handbook Rapid Growth in Retail Business Page 40
Retail Banking: Branch Expansion Key to Market Share Gains Poland 100 outlets Czech R. 52 outlets Slovenia 15 outlets Croatia 50 outlets Bosnia & Herzegovina 70 outlets Kosovo 30 outlets Albania 84 outlets (*) By 2007 Planned Branch Numbers * Serbia & Montenegro 91 outlets Slovakia 120 outlets 1,254 branches/outlets plus Aval Slide 77 Branch Outlet Growth Belarus 971 71 outlets 916 Hungary 128 outlets 604 722 Russia 70 outlets Ukraine 43 + Aval Outlets Romania 220 outlets Highlights Bulgaria 110 outlets Aggressive branch build-outs in six countries: Bulgaria, Hungary, Russia, Serbia, Poland and Belarus Approximately 340 new branches built or planned for development between 2005-2007 throughout network Network optimization strategy under development in Ukraine (1,400 Aval branches; 43 RBUA branches/outlets) Despite intense branch build-out, Cost/Income has decreased from 102 % in 2003 to 78 % in 2005 Lending Expansion Retail: Strong Lending Push Across All Markets Heightened focus on unsecured lending (including credit cards), home equity and mortgages Loan/deposit ratio rising: From 42 % in 2004 to 50 % in first half of 2005; 8 countries now have loan portfolios above 400mn(including Ukraine with Aval excluding Leasing) First wave of branch sales-force effectiveness programs launched with McKinsey & Co and Novantas (SME) in PL, CZ, RO, HR, RU and HU Retail Portfolio Mix Loan/Deposit Ratio excl. Leasing Credit Cards Auto 25% 4% 35% Consumer Loans 50% EU5 42% 37% 28% SEE 42% 58% Mortgages 36% CIS 55% Slide 78 Investor's Handbook Rapid Growth in Retail Business Page 41
Fee Expansion Initiatives Retail Banking: Asset Management Highlights Total AUM growing by 60% per annum; currently exceeding 2bnin four countries Start of Operations Local AM unit (1) Ranking Market share Total AuM mn Slovakia 1998 1 27% 820 Market leadership in Slovakia and Croatia and strong market share gains in Hungary via successful Real-Estate Fund Romania and Bulgaria next in line (2005) to launch Asset Management Companies Supplementary Drivers: Croatia Hungary 2002 2 33% 430 2002 2 20% 190 1998 5 7% 610 2nd Pillar Pension Reforms Russia Q4 2004 n/a n/a n/a Integration Note: Figures as of Dec. 31, 2004 (1) 100% owned by local Network (2) The Banks providec cross borde funds Total AuM: 2,050 In Progress In Progress Romania Bulgaria Slovenia (2) Czech (2) Poland (2) Slide 79 Fee Expansion Initiatives Retail Banking: Insurance Key Initiatives Development of preferred partner relationship (bank assurance) and strategic alignment with Uniqa Actual co-operation in: PL, CZ, SK, HU, HR and since 2005, Slovenia, Bosnia, Romania and Bulgaria Development of payment protection insurance or credit shield in the entire network Development of stand-alone products in more mature markets to offset margin-squeeze in deposits Slide 80 Investor's Handbook Rapid Growth in Retail Business Page 42
HQ NWB Operating Model Retail Banking: Current Operating Model 1 2 3 4 5 Retail Banking Topic Specialists Quarterly Reviews/ Peer Group Analysis Sales & Distribution (3 HC) PI and SME Lending (3 HC) Insurance/ Fees (1 HC) Process Excellence (2 HC) Bank Aval Integration (TBD) 6 Risk Management (7 HC) On-Site Intervention Follow Up Actions Monitoring Slide 81 Summary Retail Banking Top 10 1. Increase customer number to 12 million by 2007 through brand repositioning, distribution expansion approximately 340 new branches and new product introductions (Unsecured Lending) 2. Strengthen market positions in Hungary, Russia, Ukraine, Bulgaria, Serbia, Poland & Romania through aggressive branch build-outs and branch relocations 3. Integrate Bank Aval 4. Increase loan/deposit ratio to 70% by 2007 through increased mortgage and unsecured lending 5. Increase branch sales-force productivity (volume per FTE; volume per branch) through branch SFE programs in 12 countries by Y/E 2006 6. Improve efficiency through branch process centralization initiatives to drive C/I below 70% by 2007 7. Launch payment protection insurance in all markets and stand alone insurance sales in selected markets; launch fund management companies in Bulgaria and Romania; achieve Top 3 position in Russia 8. Deepen retail risk knowledge and collections infrastructure in each NWB 9. Develop basic CRM infrastructure in all 15 markets 10. Strengthen retail banking talent in all NWBs through aggressive hiring and training Slide 82 Investor's Handbook Rapid Growth in Retail Business Page 43