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Banking in Russia

Banking in Russia. Achievements & Prospects…. Michel Perhirin Chairman of the Board 2005. FACTS & TRENDS. The continued steady economic growth has been altering the landscape of Russia’s banking environment.

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Banking in Russia

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  1. Banking in Russia Achievements & Prospects… Michel Perhirin Chairman of the Board 2005

  2. FACTS & TRENDS

  3. The continued steady economic growth has been altering the landscape of Russia’s banking environment. Compared to the crisis-ridden nineties, a number of recent developments have set Russian banking on a principally new trajectory, including political and monetary stabilization, liberalization and structural reform, and tangible improvements in Russia’s international status. Sector wise: … turning into system The banking sector in Russia is efficiently transforming into a banking system capable of financing business expansion, acting both as a channel for capital mobility and solid building block for an effective monetary system.

  4. System monitor: … status improving Banking system vs. GDP • The growth of bank assets keeps outpacing the overall economic growth rate • Sound fiscal policy has produced a shift away from involvement in public debt operations • Transition of the banking system from a net creditor on the external market (“capital flight”) to a borrower is progressing … the trend is likely to continue in the coming years

  5. … consolidation in the banking industry is gearing up: helping to solve the issue of undercapitalization encouraging regional expansion banking M&A: Nikoil-Avtobank-UralSib, Eurofinance-Mosnarbank, Rosbank-OVK, GE-Delta Bank, Intesa-KMB Bank, Hansa bank – Kvest Environment: … changing for better The landscape of the banking sector keeps changing steadily both in terms of re-distribution of banks’ role and functions and their market position • … emergence of what can be called “universal banks” is spreading wide: • state banks are increasingly working as “conventional” banks • investment & commercial banks are aggressively expanding and diversifying their product/service range and developing new business activities (retail, asset management, leasing) … tightening regulation adds to market consolidation & transparency: • min. own capital requirement calls for mergers • private deposit insurance law makes openness the key to win the retail customers’ confidence and cash

  6. The playground: … structure wise • The structure of the Russian banking sector still remains highly fragmented, which hampers sector development… Assets dynamics comparison • Market fragmentation though offers a handful of opportunities to large private players compete successfully against state giants and the army of regional/pocket banks… • The enhanced growth in assets observed in Top-20 largest private banks vs. total banking assets implies inevitable changes towards a more effective structure to occur in the years to come… Distribution of banking assets (1.03.2005) From many aspects (economic, regulatory, political) this process is steadily turning irreversible…

  7. Inner circle: … foreign pie Distribution of foreign banks’ assets (01.03.2005) • Foreign banks that are active in Russia (Top-30) account for: • 9.5% of the total assets 3.8% of retail deposits 8.6% of private loans • Close in corporate culture, technologies, service quality and product range, many of foreign rivals are seen increasing their pressure … • Competition will keep speeding up in both retail and corporate sectors fueled by acquisitions and dumping prices… • … the time is late though for such market strategies to present a major threat to RBRU Raiffeisenbank is well positioned to protect its market share effectively benefiting from the early market entry and leveraging its growth strategy by diversified corporate loan portfolio, balanced exposure to corporate and retail markets and cost efficient network expansion…

  8. Top League: … shapers of future • State and Top-20 largest private banks account for over 60% of the total banking assets… • Top League market share is likely to grow in the next 3 years on mergers, acquisitions and inbound cross-boarder investments that are seen accelerating on the part of international majors (Citibank, JP Morgan Chase, Deutsche Bank, Intesa, SocGen, BNP Paribas, GECF, HSBC) and strong European banks… RBRU long term commitment to Russia is based on the solid market platform which offers sizable growth opportunities and rewards in the years to come…

  9. Lending: … towards the business Share of corporate loans in total assets Total corporate loan portfolio growth (1Q 01 = 100%) By 2005 the banking system’s total exposure to the corporate sector have exceeded $120 mn., accompanied by a continued growth of corporate loans’ share in the total banking assets. This proves that interaction between the banking system and economy improves…

  10. Funding prospects: … vox populi Term deposit structure(%) Private deposit dynamics (USD bn.) 2004 2003 2002 2003 2004 2002 CAGR = 47.5% (2000-2004) 2001 Private sector operations are accelerating: deposits are increasingly used to finance conventional bank transactions rather than the budget… 2000 0 15 30 45 60 75 • Private consumers’ loyalty to the banking system is seen steadily improving • Economic stabilization and the growth of income keep driving consumer spending and the demand for consumer financing • Slowing inflation, falling rates and sable Rouble expand affordability of banks’ lending to households

  11. Lending to private: … rationale both ways • Acquiring the life style of “living on credit” • Increasing demand for higher quality of life (durables, real estate) • Appreciating the habit of “making money work” (investment & leverage) Retail loans still represent a tiny fraction of GDP (aprx. 2%) which times lower than in peer CEE economies. This suggests an enormous potential in Russia’s population borrowing capacity that is yet to be untapped. Retail loans dynamics (USD mn.) Households Banks Source: Central Bank sites, RZB Group Research • Risks diversification (corporate vs. retail) • Higher margins • Incentive for regional expansion • Opportunities for new product offering (asset management, private banking, etc) • Non-interest income growth Consumer financing is expected to progress at an accelerated pace as borrowing habits keep developing and discipline improving…

  12. The Bank: Performance & Products

  13. RBRU: … today and beyond Planned for opening 2005-2006

  14. 32.63% 27.53% 2004 Growth story: … in detail Assets growth dynamics (year-to-date) • … kept moving ahead of the market in terms of assets growth • … expanded the market share by over 4.4%

  15. Market share: … assets wise • Our competitive edge has once again proven strong vs. both the largest private local and international rivals… RBRU share in assets Top-30 foreign banks Top-25* banks * - Excluding state banks

  16. 67.20% 36.64% Core business: … leading the lending Corporate loans growth dynamics (year-to-date) • … outperformed the lending market growth by far • …bank’s share in total loan portfolio grew by 22%

  17. Committment: … and loyalty • Lending activities keep accelerating driven by widening product range, improving quality of services, clients’ loyalty and strengthening reputation on the market… RBRU share in corporate loan portfolio Top-30 foreign banks Top-25* banks * - Excluding state banks

  18. Towards people: … ahead of many Retail loans growth dynamics (year-to-date) 146.01% 106.54% RBRU market share (% of total consumer loans) • RBRU led the growth in consumer lending market competing successfully in mortgage and car loans sectors

  19. Retailing: … prospects shielded 89.32% Retail deposits dynamics (year-to-date) 52.65% 27.06% Retail deposit portfolio (Top-30 foreign banks) • RBRU is facing fierce and aggressive pressure from foreign banks in retail deposit sector… • …although RBRU’s share in the total retail deposit portfolio held by foreign banks remains a solid platform for a sustainable growth in the mid term

  20. Summing up: … talking figures

  21. Ruble Corporate Bond Issues: Since 2001 Raiffeisenbank acted as an arranger and Lead Manager of 52 rouble bond issues totaling RUB 110 Bn (~USD 4 Bn) Leader in Russian debt capital markets Syndicated Loans (Russia & Euromarket): Raiffeisenbank actedas Mandated Lead Arranger of 36 syndicated loans totaling USD 3.3 bln Raising external equity financing M&A and structuring advisory Acquisition financing (LBO/MBO/Re-capitalization) Beyond lending: … IB & Treasury • FX operations (among top 10 active banks in terms of volumes) • Money Market (term deposits, promissory notes) • Hedging of RUR/FCY and FCY/FCY exposure • Brokerage and custody services • Asset management

  22. SyndicatedLoan USD80,000,000. Mandated Lead Arranger October 2004 SyndicatedLoan USD75,000,000. Mandated Lead Arranger January 2004 SyndicatedLoan USD45,000,000. Mandated Lead Arranger April 2005 SyndicatedLoan USD600,000,000. Mandated Lead Arranger August 2004 SyndicatedLoan USD50,000,000. Mandated Lead Arranger February 2005 SyndicatedLoan USD50,000,000. Mandated Lead Arranger April 2005 SyndicatedLoan USD35,000,000. Mandated Lead Arranger May 2005 SyndicatedLoan USD43,000,000. Mandated Lead Arranger December 2004 SyndicatedLoan USD10,000,000. Arranger December 2004 SyndicatedLoan USD43,000,000. Mandated Lead Arranger November 2004 Syndicating: … $1 billion story

  23. Bond Issue RUR 5 000 000 000 Arranger May 2005 United Metallurgical Company Bond issue RUR 3 000 000 000 Arranger June 2005 Home Credit and Finance Bank Bond Issue RUR 3 000 000 000 Arranger May 2005 Home Credit andFinanceBank Bond Issue RUR 3000 000 000 Arranger September 2005 Pyaterochka Bond Issue RUR 1 500 000 000 Arranger May 2005 VKM (Ruzkhimmash) Bond Issue RUR 1000 000 000 Arranger June 2005 Bond Issue RUR 1 500 000 000 Arranger May 2005 Investment banking: … most recent deals TuranAlem Bank Bond Issue RUR 3000 000 000 Arranger September2005 Ochakovo Bond Issue RUR 1 500 000 000 Arranger September2005 Chelyabinsk Tube Rolling Plant Bond Issue RUR 3 000 000 000 Arranger June 2005

  24. RBRU: … in terms of ratings • Long-term national scale credit rating - Aaa (rus) and the short-term rating RUS-1 (Moody’s Interfax Rating Agency) • 8th - among largest Russian retail banks, based on deposits (Dengi magazine) • 8th largest Russian client bank, based on current accounts(Dengi magazine) • 11th - among largest Russian banks in terms of net assets(CEA Interfax) • 11th - among most profitable Russian banks(CEA Interfax) • 11th - among Russian banks in terms of corporate loans(CEA Interfax) • 7th - among largest Russian banks in terms of private deposits(CEA Interfax) • 4th - among largest Russian banks in terms of consumer loans(CEA Interfax)

  25. 2003 Raiffeisen Banking Group in Russia - "Best Syndicated Loan Provider", Global Finance 2003 Raiffeisen Banking Group in Central and Eastern Europe (in 15 regions) - „Best Trade Finance Bank in Central and Eastern Europe“, Global Finance 2004 Best Project Finance House, Global Finance 2004 Best market-maker, MICEX 2004 “Deal of the Year” – USD 38.7 mln, LC facility for Aeroflot, Trade Finance Magazine 2004 Raiffeisen Zentralbank (Austria) and its NWB in Central and Eastern Europe nominated as "Best Sub-Custodian in Central and Eastern Europe”, Global Finance magazine 2004 “Loan of the Year in Eastern Europe, Middle East and Africa” – loan organized by Raiffeisenbank Austria, ZAO and Raiffeisen Zentralbank Oesterreich AG for Mobile TeleSystems (MTS), International Financing Review magazine 2005 Raiffeisenbank is ranked No 1 arranger on the rouble corporate bond market, Cbonds 2005 Best innovation on RUR corporate bonds market (Securities Market magazine) 2005 Jan-Jun (excluding Multinational Institutions): #1 Mandated Lead Arranger #1 Mandated Lead Arranger and #3 Bookrunner in Russia, Dealogic Acknowlegements: … and awards

  26. Appreciate your attention THANK YOU !

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