Corporate Banking in Romania and in New Europe Murat Mentes, Head of Corporate Marketing Romania Top 100, 3. Edition Bucharest, November 18, 2003

2 EXECUTIVE SUMMARY  Countries in New Europe, with a vast market growing at a significantly higher pace than the average of EU, are moving from transition to EU convergence  This means new challenges for companies, of course including banks, in terms of optimal positioning in the market, new segments and products exploitation, new competitive pressure and search for efficiency  Important market opportunities are also matched by decreasing risk  In the corporate segment customers’ demand and behaviour are changing in a sophisticated way, even though changes are less evident than those experienced by the retail segment  Changes partly depend on financial markets’ evolution, through employing different investment allocations for higher returns, using risk hedging instruments, etc, but the main driver for the change is still continuous financing needs of corporate segment for both investment and working capital purposes  The role of foreign banks has already proven to be very significant to bring capital and know-how that are fundamental at this stage of development of the corporate segment in NE countries to support the expected growth  Challenges are still ahead of us waiting for EU/ EMU convergence, legal and regulatory advancements, as well as Basle II implementation

3 AGENDA  What is “New Europe”?  Romanian Economic Landscape  Corporate Segment Landscape  Corporate Banking in Romania and in New Europe  Steps Ahead

4 WHAT is “NEW EUROPE” ? (*) NE(12): CEE candidates for enlargement, plus Croatia and Turkey, excluding Cyprus and Malta 2004 ENTRANTS LITHUANIA CYPRUS* HUNGARY ESTONIA LATVIA POLAND SLOVAKIA MALTA* SLOVENIA 2007 ENTRANTS BULGARIA ROMANIA OTHER ASPIRANTS CROATIA TURKEY CZECH REP.

5 AGENDA  What is “New Europe”  Romanian Economic Landscape  Corporate Segment Landscape  Corporate Banking in Romania and in New Europe  Steps Ahead

6 ROMANIAN ECONOMIC LANDSCAPE  Slow restructuring efforts along with slow foreign demand shall contribute to expected slowdown of economic growth in 2003  Structural reforms have progressed, although slower than recommended by IMF due to prolonged global recession as well as some political hindrances  Disinflation still remains the main target for Central Bank. Inflation has remained on a downward trend this year, but a single digit inflation still requires a considerable effort  International rating agency Standard & Poor’s has improved Romania’s assessment for LT  Banking system has continued to reinforce, through better intermediation of banking products, and continuous branch network development, steps towards structural changes  Corporate Segment lending is growing, faster than nominal GDP, but more slowly than retail. Retail Segment remains still a major objective for banks  The new credit quality regulation increased the total stock of NPL  Central Bank's decision to increase its reference interest rate was a result of talks with IMF to have a better control on non-governmental lending and to encourage savings  Growing trend in the unemployment rate  Service sector contribution to GDP is expected higher than the more traditional sectors in MT

7 AGENDA  What is “New Europe”  Romanian Economic Landscape  Corporate Segment Landscape  Corporate Banking in Romania and in New Europe  Steps Ahead

8 COMPONENTS of DEMAND for FINANCIAL SERVICES  Globalization, EU convergence  Low-cost delocalization inflow  Industry restructuring process  Role of FDI  Implementation of Market Economy principals  Up-grade of country ratings  Transition from State to Private  Growth of Private sector both domestic and international  Lack of managerial skills required to grow  Development of Private Entrepreneurship  Investment diversification,  Increasing in-flow for private equity funds  Local and international lending, non-reimbursable funds DEMAND of CORPORATE SEGMENT for FINANCIAL SERVICES  Transition from State to Private  Acquisitions  Specialization of networks, products and services  Growing impact of technology  Better intermediation OWNERSHIP MODEL FINANCIAL MARKETS BANKING SECTOR COMPETITIVE FORCES

9 PRODUCTS and SERVICES  Credit Facility, mainly cash, is still the key relationship building factor  Developing market forces have great impact on the appetite for new products and services  Improving business environment forces banks to provide diversified products, more flexibility, etc  Market evolution forces relationships based on quality, confidence, transparency, and mutual gain DOMESTIC AND CROSS BORDER M&A CORPORATE REORGANIZATION DYNAMIC HEDGING OF FINANCIAL RISKS NEW SOURCES OF FINANCING NEW EQUITY, NEW INVESTORS ADVISORY SERVICES CAPITAL MARKETS (corporate bonds, securitization, project finance) DERIVATIVES (forward, swap for both interest and FX rate) INTERMEDIATION (private equity, venture capital) NEW NEEDS PRODUCTS AND SERVICES

10 CORPORATE SEGMENT GROWTH COMPONENTS of LONG TERM GROWTH DEMAND Internal demand growth  Gap in life-style  FDI and Investment  EU structural Funds  Increase in disposable income Export growth  Selected comparative advantage  Cost of labour  Full market liberalisation SUPPLY Capital  FDI  EU structural funds  Domestic investment / saving Productivity gains  Privatisation and restructuring  FDI  Skilled work force  Competitive challenge of EU market Labour  Unemployment  Low cost of labour  Limited wage pressures

11 AGENDA  What is “New Europe”  Romanian Economic Landscape  Corporate Segment Landscape  Corporate Banking in Romania and in New Europe  Steps Ahead

12 SIZE AND DEPTH – COUNTRY BREAKDOWN  Corporate lending is still the main lending activity, mainly working capital and investment  Foreign ownership is largely dominant in all markets, but Turkey, Slovenia, and Romania  Foreign currency activity is strong in Croatia, Bulgaria, Romania, and Turkey  Banking penetration in terms of network is still possible in Romania, Bulgaria, and Turkey  NPL is still an important quality problem, Romania, Croatia, Slovakia, and Bulgaria had substantial improvements, Poland and Turkey are recovering last economic crisis  Market structure, concentration, and public sector dominance are heavily effecting loan pricing  Different level of capital markets development leads to competition from other financial products, but deposit is still the main investment product

13 ATTRACTIVE INVESTMENT PROSPECTS Low Risk Moody’s Sovereign Rating/Country Risk High Risk Banking system risk based on Moody’s BSO New Europe Asia Latin America Source: Moody’s Investor Service Global Research, Rating List Ceilings for Foreign Currency, Bank Deposits, Long Term Low Risk High Risk

14 BANKS’ – CORPORATE SEGMENT INTERACTION GDP growth Banks’ Performance and Behaviour Impact on Corporate Segment  New product and services  Credit risk management upgrade  Support infrastructure development  Intermediation of FDI entry  Short term vs. long term behaviour  Corporate Social Responsibility  Inflow of capital, know-how, and new market behaviour  New segment and product development  Experience transfer, new practices and competencies (i.e. market segmentation, risk management)  IT and Human Resources enhancement  Support of growth and internationalisation development of local economy Banks’ Performance and Behaviour Impact on Corporate Segment

15 UNICREDITO ITALIANO 2002 KEY FIGURES MKT CAP. - largest Euro 23.4 bn NET INCOME Euro mln C/I RATIO 54.3% PRE-TAX ROE 28.6% ROE 17.2% BRANCH NETWORK 4,176 Currently n. 10 European Bank by market cap, n. 5 in the Eurozone

16 Warsaw Bratislava Sofia Zagreb Bulbank – Bulgaria (1) 85.2% acquired in October 2000 Bucharest Group Pekao – Poland (1) 53.2% acquired in May 1999 UniCredit – Romania (1) 99.8% acquired in May 2002 Zagrebacka Group-Croatia Bosnia-Herzegovina (1) 81.9% acquired in March 2002 UniBanka – Slovakia (1) 76.3% acquired in October 2000 Pioneer Koç Fin. Serv. – Turkey (2) 50% acquired in October 2002 Prag ue Istanbul Zivnostenka Banka Czech Rep. (1) 95.04%. Acquired in February 2003 UCI PRESENCE IN NEW EUROPE

17 TODAY - 24 Branches, 8 in Bucharest and 16 in the major cities END of Branches, 12 in Bucharest and 20 in the major cities UNICREDIT ROMANIA NETWORK

18 AGENDA  What is “New Europe”  Romanian Economic Landscape  Corporate Segment Landscape  Corporate Banking in Romania and in New Europe  Steps Ahead

19 STEPS AHEAD  Privatisation  Restructuring  Portfolio clean-up  Foreign banks entry  M&A increase TRANSITIONMARKET ECONOMYNEXT STEPS  Positioning in the market  New market development  New product development  Competition  Efficiency  EU / EMU  BASLE II

20 CORPORATE SEGMENT SUMMARY  Corporate customers behaviour is quite rational and little emotional. Their expectation on banking services’ quality is high, growing and long in excess of the average offer  They prefer standardized products and services for convenience, but they high appetite for customized solutions based on their needs  Corporate Banking business models and organizations adopted by many commercial banks have yet to meet these expectations, due to lack of customer focus  Overall service quality drives rational customers to choose top-tier relationships, in an over-banked market  Price is critical, but seldom the key factor

21 UCR STRATEGY  Strategy of UCR is reinforced by consistent customer focus and by the synergies with the main share holder UCI. New Europe Banks are also essential for this purpose, given their distinctive role in the internationalisation process.  UCR, with it’s growing organizational structure, is targeting to become one of top banks in Romania. The key pillars of this strategy is build on four main success factors;  SPECIALIZED SALESFORCE Focused on customer needs… …intensively trained  SMART CLIENT-CLUSTERING To target pool of high-value clients with more RMs’ time… …and serve low-value clients with cost-effective models  CUSTOMER SATISFACTION-DRIVEN PROCESSES To be the best in class when Quality is the selection criteria  INTEGRATED PRODUCT RANGE Blending product shelve and service quality… … supporting the relationship-building efforts through a wide range of solutions