September 2006 Martin Vozar

1. Capital MarketsOverview September 2006 Martin Vozar

2. Global Trends Commodities: • Crude oil: oil prices have declined 22 percent from record $78.40 a barrel reached on July 14. Prices fell as fuel stockpiles in the U.S. rose and tensions in the Middle East eased. • Gold: Gold declined from beginning of September below $600 for the first time in 10 weeks as declining oil prices reduced metal’s appeal as a hedge against inflation. Gold had fallen 20% from a 26-year high of $732 in mid May.

3. Global Trends • Fixed income: • US: As expected, the FOMC held policy rates unchanged at 5.25%. • “…inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand." • 9/20/2006 FOMC Statement • Japan: The BoJ held its key interest rate at 0.25% on 8 September monetary policy meeting. • Europe:As expected, the ECB held its key policy rate at 3% on 31 August meeting.

4. Global Trends Stocks Markets: • US Equities: U.S. stocks rallied, pushing the S&P 500 Index closer to a five-year high, on falling oil prices and growing speculation that interest rates have probably peaked. • Japan: Japanese stocks gained after oil dropped to a six-month low and Fed keep rates unchanged. • Europe equities: European stocks rose to a two-week high as oil fell to its lowest since March, easing concern energy costs will weigh on earnings growth.

5. US – Economy • Initial jobless claims for the week of September 17 increased to 318.000 from a 311.000 the week before 9/8 (9/1, 313,000). 4 week avg. 315.000. • •Housing starts in August declined by 7.2% to 1.665 million annualized units (July 1.795 mil.). From beginning of the year Housing Starts dropped by 26.4%. • • The University of Michigan’s preliminary index of consumer sentiment increased to 84.4 from 82 in August (average level from 1978 is at 88.1). Confidence among U.S. consumers supported declining gasoline prices and strength in the labour market. • Net Foreign Security Purchases of Treasury notes, corporate bonds, stocks and other financial assets increased $32.9 bill., down from June’s $75.1 bill. and smallest gain since May last year. Demand for U.S. Treasury tumbled. • • The national US Homebuilders survey for September dropped to a 15-year low this month as sales slowed and profits dropped. Index fell to 30 from 33 in August. It was the eight consecutive monthly drop in the index.

6. US – Economy • American CPI prices rose in August at half the pace of the previous month. The CPI MoM rose 0.2% following July’s 0.4%. The Core CPI climbed 0.2% for a second month. • Headline CPI prices rose 3.8 percent during the 12 months ended in August compared with 4.1% in the period ended in July. Core prices rose 2.8 percent from a year earlier, the biggest 12-month jump since November 2001. • The PPI core fell in August by -0.4% (MoM), the second decrease since October. Headline PPI decreased to 3.7% from 4.2% a month earlier.

7. US – FX Market • The dollar declined on concern slowing growth of the U.S. economy supporting the Fed decision to keep its main interest rate on hold for the second straight month. • The U.S. currency has dropped 6,8% against the euro and 0,6% versus the yen this year on speculation central banks in Europe and Japan will outpace the Fed in raising borrowing costs.

8. Two-year T-bond yeld (Reuters Poll) Q406 Q107 Q37 Median 5.00% 4.85% 4.73% Max 5.40% 5.75% 5.60% Min 4.10% 4.05% 3.80% US – Fed funds rate • Fed leave’s its benchmark interest rates at 5.25% on 20 September FOMC meeting.

9. US – Money and Bond Markets

10. US - Yield Curve Changes

11. EU – Economy • The Euro area GDP was reported to have grown at a 3.7%q/q pace, after a 2.5% pace in 1Q. In the 2Q, the strength was broad based across countries and sectors. France and the Netherlands reported annualized gains of 4.7%q/q and 4% respectively. The German data are close to 4%q/q.

12. EU – Economy • Euro area industrial production was weaker than expected in July. Eurostat estimates that output declined 0.4% on the month in July (consensus: +0.3%) while the June outcome was 0.0%. Germany (+2.4%m/m), France (-1.3%m/m), Italy (-0.3%m/m). Average rate for 3Q +0.5%, 2Q +4.1%. • Euro area capacity utilization in manufacturing has risen sharply in the past few quarters and now stands at 83.6%. In the last upswing, capacity utilization reached this level in early 2000. • Euro area unemployment in June declined to the lowest since the common currency began. The jobless rate fell to 7.8% from 7.9% in May.

13. EU – Economy • The German ZEW survey of analysts expectations posted another sharp decline in September, down from -5.6 in August to -22.0. Meanwhile, the assessment of current conditions continued to climb, moving from 33.6 in August to 38.9 in September. Given increasing recognition of the current strength of the German economy and growing concerns about the outlook.

14. EU – Economy • Euro area HICP inflation rose 2.3%oya in August, down a tenth from July's level. The move reflected some easing in the energy component, down from 9.5%oya in July to 8.1%oya in August, partly offset by a further pickup in food prices, up to 2.9%oya in August from 2.6%oya in July. • Core inflation moved down slightly from 1.6%oya in July to 1.5%oya in August, driven by lower transport & communication prices. • Euro area headline inflation will fall smartly in the next few months, most likely below 2.0% in the autumn, on the back of lower energy prices.

15. ECB Refi Rates (Reuters Poll) Two-year schatz yeld (Reuters Poll) 4Q 06 Q406 1Q 07 Q107 Q37 2Q 07 Median Median 3.78% 3.50% 3.50% 3.75% 3.50% 3.75% Max Max 3.50% 4.10% 4.00% 4.25% 4.00% 4.25% Min Min 3.25% 3.25% 3.25% 3.25% 3.20% 3.25% ECB • As expected, the ECB unchanged basic rate at 3% on 31 August meeting.

16. EU – Bond Market

17. EU - Yield Curve Changes

18. US vs. EU Yield Curve Changes

19. US vs. EU Spread Changes

20. Japan - Yield Curve Changes

21. Slovak MM, Fixed income and FX • August CPI decreased to 0.0 % from July’s level 0.2%. The annual rate increased to 5.1 %, from July’s level 5.0%. August Core CPI was at the same level like month before 2.8% YoY. • Trade balance in July was worsened compare to month before, -7.3 bill. Sk from –6.2 bill. Sk. • Unemployment rate fall under 10%, 9.9% in August, 10.2% in July. • Real wage was up +3.1% in July, June +2.4%.

22. Slovak MM, Fixed income and FX • Investors are expecting proposal of the new state budget for 2007. New fiscal priorities are agriculture, education and health service. Government will need additional 21 bill. Sk for fulfill of the new fiscal priorities.

23. Slovak MM, Fixed income and FX

24. CEE Central Banks from CEE region, interest rates: • SKK unchanged 4.5 %(new meeting 26.9.2006) • HUF changed7.25% (+0.5%, new meeting 25.9.2006) • PLN unchanged 4%(new meeting 27.9.2006) • CZK unchanged2.25%(new meeting 27.9.2006)

25. CEE Yield curves comparison

26. Credit Markets Overview

27. Credit trends • Moody’s Speculative Grade Default rate • The default rate slipped to 1.6% in August from 1.7% in July, as only two, relatively small, US-based corporate defaults occured in August

28. Credit trends • Moody’s Speculative Grade Default rate • Moody's predicts only a marginal rise in corporate defaults over the next twelve months – compared to the forecast from the beginning of 2006 • Moody's forecasting model for global speculative-grade default rate predicts that the default rate will finish 2006 at 2.1%, rising to only 2.4% by the end of August 2007

29. Credit trends • The traditionally busy period of new supply approached, but is expected to have no big influence on spreads’ stability – new issuance manageable, only few large deals • The credit spreads remained within a tight trading range for last month and in a current environment of low default rates and good credit quality – it’s hard to see a factor which would push spreads significantly wider • New series of iTraxx started to be traded on 20 September 2006: • iTraxx Europe (125 names) – Series 6 +2bp wider than Series 5 • - 8 names differ • iTraxx Crossover (45 names) – Series 6 +41bp wider than Series 5 • - 7 names differ

30. Credit trends Europe U.S.

31. Credit trends CDO spread change: Almost no change in September

32. Investment portfolio managementContacts:Jan Pataky Head of Investment portfolio management (+421 2) 5850 5463 pataky.jan@slsp.sk Andrea Osuchova Portfolio Manager (+421 2) 5850 5392 osuchova.andrea@slsp.skLubomir Golany Portfolio Manager (+421 2) 5850 5412 golany.lubomir@slsp.sk Alena Teplicanova Quant Analyst (+421 2) 5850 5382 teplicanova.alena@slsp.skMartin Vozar Research (+421 2) 5850 5388 vozar.martin@slsp.skMichal Klestinec Research (+421 2) 5850 5403 klestinec.michal@slsp.sk

33. Disclaimer:This report is meant as supplementary economic information for our clients and is based on information available on the date of printing. Our analysis and conclusions are of a general nature and do not take into account the individual circumstances or needs of investors such as income potential, tax situation or the level of risk he or she is prepared to undertake. Information about previous performance does not guarantee future performance. Although we judge our sources to be reliable, we do not accept any responsibility for the completeness and accuracy of our information. This report is neither an offer to sell nor an offer to buy any securities. Erste Bank der oesterreichischen Sparkassen AG confirms that it has approved any investment advertisements contained in this material. Erste Bank der oesterreichischen Sparkassen AG is regulated by the Financial Securities Authority for the conduct of investment business in the UK.