FHB - Potential Newcomer at Euro CMB Markets Presentation by FHB Land Credit and Mortgage Bank FHB Land Credit and Mortgage Bank June 2002

ContentsContents Mortgage banking in Hungary FHB - financial highlights FHB and its DCM activity

Mortgage Banking in Hungary I. Institutional set-up Institutional set-up: three operating mortgage banks –FHB –FHB (1998) main focus on residential mortgage fully state owned –HVB (1999) predominantly commercial mortgage private –OTP Mortgage Bank (2002) mixed loan portfolio 100 % owned by OTP Bank (The biggest Hungarian bank)

Mortgage Banking in Hungary II. Legislative framework Special law on mortgage banking: Act XXX –basis: German model (strict ratios - 60% LTV) –CMB-s: fully compliant with relevant EU UCITS directive for covered securities credit institution (Mortgage Bank) as issuer subject to special supervision (additional coverage supervisor) priority status for CMB holders Modification of mortgage legislation 2001Modification of mortgage legislation 2001 –enhancing cooperation between mortgage banks and commercial banks (purchase of independent lien) REFINANCING!

Financial highlights (as of 31 December 2001) FHB Financial highlights (as of 31 December 2001) BN HUFM EUR Own Capital 5, Total Assets35, Total CMB`s 26, ,7 P&L CAR26%

Break-even: loan portfolio about 30 BN HUF (130m Euro) Turnaround to positive cash-flow: November 2001 First 5 months 2002: confirmation of the trend Profit & Loss Accounts

FHB`s Lending Strategy Asset portfolio: 93 % residential loan –geographically well diversified –high quality (over 96% current and performing) –over collateralized (280%) Average maturity: 11 years Average size: 4 MHUF ( EUR) Multilevel distribution (loan placement) channels –Insurance agents –Commercial banks ( refinancing)

FHB`s Lending Strategy

Funding Strategy FHB`s Funding Strategy : Relying on private placements –average size: 0,5-1,5 BN HUF(2-6 M EUR), 13 closed series, –average spread: T b.p. 2001: Shift to public offerings –the aim greater transparency and higher liquidity –average size:7-20 BN HUF (30-80 M EUR)/series, monthly twin auctions, 2-3 fold over subscription, –average spread: T b.p. –2 series (6yr fix) closed, 3 series open Distribution: –shift from subscription to calendar type free auctioning –selling and price quoting consortium (7 ”PD-s”)

Funding Strategy II. FHB`s Funding Strategy II.

Challenges ahead Steady growth of mortgage lending –FHB total assets grew by 74% in 2001 Estimated growth in 2002: 95% Narrow domestic institutional investor base –total assets of ”QIB”-s: 2000 BN HUF (8 BN EUR) (only 13% of GDP) –reluctance to diversify fixed income portfolio (funding potential/mortgage bank/year: BN HUF) Other investors (retail and banks): limited interest (15 BN HUF)

Future funding strategy Priorities: –expanding the investor base –further improving liquidity Tools to achieve these goals: –obtaining international credit rating (due diligence starts in July) –setting up an EMTN program (EuroHUF, EUR) –entering Euro market

ConclusionConclusion