1. Banking System The Czech Republic 15 th BACEE Central and East European and Bank and Country Conference 14-16 November 2006, Budapest

2. 2 Banking System overview – Reforms & Privatisation  1990 - 1995, Period of Expansion: After transition to market economy several private financial institutions were established and foreign players entered the Czech market, by mid 90-ies the total amount of banks reached 55 out of which 34 were domestic.  1995 - 2000, Period of Consolidation: The second half of 90-ies is characteristic for consolidation of the banks and transition of ownership in to foreign hands. The total number of banks fall to 40 out of which only 14 remained domestic.  1998 - today: is marked by privatization of state owned banks: cleaning portfolios of Sporitelna, Komercni Banka IP Banka, etc. by transferring problem loans to Ceska Konsolidacna Banka and subsequent sale to foreign investors  State ownership in banking sector drops dramatically  Concentration of banks is growing and it will be further fuelled by merger of HVB CR and Zivnostenska Banka 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest

3. 3 Structure of the banking sector 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB

4. 4 Structure of the banking sector: Assets I. Note: Calyon S.A. changed its subsidiary into a branch on 1.11.2005 Bank of Tokyo-Mitsubishi UFJ NV set up a branch in 2006 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB, Raiffeisen Research

5. 5 Structure of the banking sector: Assets II. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB Shares of bank groups' Total Assets in % of Banking sector Total 12/31/0312/31/0412/31/0503/31/0606/30/06 Banking sector, total100 large banks62.1159.7761.2362.2461.87 medium-sized banks15.5915.7515.1115.3715.65 small banks1.451.551.982.192.17 foreign bank branches10.3510.949.527.938.52 building societies10.5111.9912.1712.2711.79

6. 6 Structure of the banking sector: Assets III. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Shares of bank groups' Gross credits in % of Banking sector Total 12/31/0312/31/0412/31/0503/31/0606/30/06 Banking sector, total100.00 large banks61.0759.6857.6558.0557.12 medium-sized banks21.2821.5623.3722.8323.18 small banks1.201.762.612.492.81 foreign bank branches9.007.877.327.577.77 building societies7.459.139.049.059.13 Source: CNB

7. 7 Banking sector development: Assets I. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB 12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 2004 vs. 2003 change over time in % 12/31/05 (in CZK'mln.) 2005 vs. 2004 change over time in % Total Assets2,527,7072,635,5544.3%2,954,36912.1% Receivables from banks756,953825,4559.0%919,85111.4% Receivables from customers996,2001,073,8587.8%1,174,3569.4% Debt securities210,726208,650-1.0%276,91932.7%

8. 8 Banking sector development: Assets II. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB 03/31/06 (in CZK'mln.) 03/31/06 vs. 2005 change over time in % 06/30/06 (in CZK'mln.) 06/30/06 vs. 2005 change over time in % Total Assets3,030,8322.6%3,117,2535.5% Receivables from banks939,2772.1%910,869-1.0% Receivables from customers1,222,7874.1%1,290,8339.9% Debt securities281,5681.7%307,62411.1%

9. 9 TA & Market share 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB Ranking (2005) BANK Assets in 2005 (EUR'mln.) Assets in Q3-2006 (EUR'mln.) Market share (2005) 1. Ceskoslovenska Obchodni banka26,387.5*29,287.6525.3% 2.Ceska Sporitelna23,418.025,613.422.4% 3.Komercní banka17,677.717,567.717.7% 4. HVB Bank Czech Republic6,887.3-6.6% 5.Commerzbank3,784.02,195.13.6% TOP-367,483.243,181.165.4% TOP-578,154.4-75.6% *H1-2006 figure

10. 10  CSOB-KBC, Belgium  Ceska Sporitelna-Erste Group, Austria  Komercni Banka-Societe Generale, France  HVB Bank-Unicredito, Italy  Commerzbank-Commerzbank, Germany  Raiffeisenbank-Raiffeisen Group, Austria  Citibank-Citi Group, USA  GE Money Bank-General Electric, USA  ING Bank- ING, Netherland  Zivnostenska Banka-Unicredito, Italy Ownership of Top-10 banks Source: CNB, Raiffeisen research 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest

11. 11 Sector is focused on retail market which has by provided ground for solid growth as a result of the favourable demographic factors and historically low interest rates. Household and mortgage loans in 2005 stabilized somewhat after a boom in 2004. Credit boom 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB, Raiffeisen Research

12. 12 CZ and its Peers: Lending rates 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB

13. 13 CZ and its Peers: Loans to the private sector 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: BIS, National Central Banks

14. 14  CZ is advanced in terms of legal and institutional reforms  boost 2nd highest GDP per capita in CE (see chart to right)  bank restructuring and privatization is largely completed and the sector is characterised by high market shares of foreign owned banks  the overall size of the banking sector is still below the Euro-zone level  similarly to the economy the banking sector is also approaching the EU level CZ and its Peers: Household Loans I. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Credits to households vs. GDP/capita CZ in 2004 Source: CNB, Raiffeisen research

15. 15 CZ and its Peers: Household Loans II. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest

16. 16 Loan quality 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB (in CZK'mln.)

17. 17 CZ and its Peers: Loan quality 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB Non- performing loans (2005) Provisions (2005) CZ4.4%2.8% Hungary3.6%1.9% Poland6.0%5.5% Slovakia6.3%4.9%

18. 18 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB Structure of the banking sector: Liabilities Shares of bank groups' Client deposits in % of Total in % of Banking sector Total 12/31/0312/31/0412/31/0503/31/0606/30/06 Banking sector, total100.00 large banks68.4064.5262.9763.7464.32 medium-sized banks11.3010.9111.5111.3211.13 small banks1.491.712.122.402.32 foreign bank branches3.885.685.756.156.11 building societies14.9317.1817.6616.3916.11

19. 19 Banking sector development: Liabilities I. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB 12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 2004 vs. 2003 change over time in % 12/31/05 (in CZK'mln.) 2005 vs. 2004 change over time in % Total Liabilities2,385,0682,489,8194.4%2,787,22711.9% Liabilities to banks285,320361,13426.6%409,69113.4% Liabilities to customers1,665,8871,731,8504.0%1,919,55910.8% Liabilities from debt securities201,680214,6196.4%262,04622.1%

20. 20 Banking sector development: Liabilities II. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB 03/31/06 (in CZK'mln.) 03/31/06 vs. 2005 change over time in % 06/30/06 (in CZK'mln.) 06/30/06 vs. 2005 change over time in % Total Liabilities2,856,3292.5%2,938,6655.4% Liabilities to banks309,262-24.5%336,515-17.9% Liabilities to customers2,078,5758.3%2,143,52911.7% Liabilities from debt securities255,948-2.3%259,950-0.8%

21. 21 Equity I. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB 12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 2004 vs. 2003 change over time in % 12/31/05 (in CZK'mln.) 2005 vs. 2004 change over time in % Equity142,639145,7352.2%167,14214.7% 03/31/06 (in CZK'mln.) 03/31/06 vs. 2005 change over time in % 06/30/06 (in CZK'mln.) 06/30/06 vs. 2005 change over time in % Equity174,5034.4%178,5886.8%

22. 22 Equity II. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Capital adequacy 12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 12/31/05 (in CZK'mln.) 03/31/06 (in CZK'mln.) 06/30/06 (in CZK'mln.) Capital in CZK millions142 639145 735167 142174 503178 588 Capital requirements for banking portfolio73 29485 758105 159110 164116 179 Capital requirements for trading portfolio5 5457 0407 5969 0017 589 Capital adequacy in %14.4712.5611.8611.7211.54 Source: CNB

23. 23 CZ and its Peers: Capital Adequacy 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB Capital adequacy (2005) CR11.9% Hungary11.4% Poland15.4% Slovakia17.0%

24. 24 Ratings of selected Banks in 11/2006 Source: Website of Moody’s, Fitch and S&P 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Moody'sFitchS&P CSOBA1/P-1A+/F1- Ceska SporitelnaA2/P-1A-/F2A-/A-2 Komercni BankaA1/P-1AA-/F1+A/A-1 Zivnostenska BankaA2/P-1--

25. 25 Banking system profitability indicators 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB Absolute indicators in CZK’millions 12/31/0312/31/0412/31/0506/30/06 Income from banking activities:90,252103,486108,91857,476 interest profit54,30359,76064,04334,194 income from fees and commissions26,34331,32631,83116,566 income from shares and interests8241,3692,189844 income from other financial transactions8,78311,03110,8545,872 securities transactions7513,1152,213(1,480) foreign exchange operations5,8188,8894,7004,418 derivatives transactions (excluding hedging)2,214(975)3,9372,934 transfer of receivables for trading0240 Net profit30,19332,85239,13921,060

26. 26 Banking system profitability indicators 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Source: CNB 12/31/0312/31/0412/31/0503/31/0606/30/06 Income from banking activities/average assets in %3.623.963.883.783.79 Net profit/average assets in %1.211.261.391.441.39 Net profit/capital (Tier 1) in %23.8023.3425.1626.1825.23 Total interest income/interest earning assets in %3.923.773.87 3.91 Total interest expenses/interest bearing liabilities in %1.891.641.581.551.58 Interest rate spread in %2.032.132.292.322.33

27. 27 Recent developments I. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest moderate growth of commercial banking sector in H1-2006 booming economy has fuelled consumer spending -> growth in loans loan/deposits, loans/assets and loan/GDP ratios continue to move upwards HOWEVER this growth remains low on an international comparison (e.g. loan/asset ratio of 40.9% is the second lowest in CEE) banking sector is entering a level of maturity the bond portfolio has recently declined Bank of Tokyo-Mitsubishi opened a branch in in April, this year Österreichischer Gewerkschaftsbund (OGB) is to sell its financial group BAWAG P.S.Ks -> Czech BAWAG to be sold Moody's announced on 1 November to increase the long-term foreign currency-denominated obligations rating of Czech Export Bank (CEB) from A1 to Aa1

28. 28 Recent developments II. 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest Raiffeisen International to focus on asset management and insurance in CE incl. CZ Antimonopoly Office and the Czech National Bank approved Komercni Banka aquiring 60% stake in construction savings bank Modra Pyramida on 13 October Raiffeisenbank acquires 100% in Czech eBanka, purchase price was set at EUR 130mn (CZK 3.7bn), merger will be legally and operationally completed by 2008 Ceska Sporitelna (CS) implements a new strategy aiming at strengthening its position as the leader of the retail banking segment by e.g. reducing client liability in the event of a lost card and by increasing the number of investment consultants at its branches, Jack Stack, CEO said on 10 October CS has to cancel anonymous bank books within the fight against money laundering, however people have just withdrawn CZK 570 mln. in Q3-2006 and still have CZK 4.45bln. in these books

29. 29 Outlook Strengths –Concentration of banks –95 % of operations in foreign hands -> improved risk management Opportunities –Retail/consumer lending (still). –Mutual fund distribution –Asset management Weaknesses –Rapid expansion mainly targeted households -> DOUBTS about resilience of banks’ credit portfolios to macroeconomic shocks –Market is maturing Threats –Possible further consolidation may put smaller banks at a disadvantage 15 th BACEE Central and East European Bank and Country Conference 14 - 16 November 2006, Budapest