The Russian Banking Sector: Assessing the Growth Michel Perhirin, CEO, MDM Bank

1. The Russian Banking Sector: Assessing the Growth Michel Perhirin, CEO, MDM Bank Regional Cooperation Forum GENEVA, 9-10 JULY 2006

2. Macroeconomic Overview

3. Overview: Russian Economy Stable economy • The latest forecasts show Russian GDP to surpass 1,000 bln USD by 2007 • The inflation forecast is 8.5% for 2006 • Foreign currency reserves have reached $247.2 bln by end of June 2006 and are expected to increase further • There has been an increase in the payment surplus for current operations 3

4. The Russian Federation has the 14th highest GDP Overview: Russia is Closing to Top 10 by GDP Russia’s rapid and sustainable growth has brought the country onto the list of leading World economies

5. Overview: Sovereign Ratings International agencies recognize the success of the Russian economy; the country has solid Sovereign ratings.

6. Overview: FDI Inflow Foreign Direct Investment inflow is constantly increasing due to improved economic and political conditions Location sites considered for new investment or expansion (% of citations for each country) FDI & Portfolio investment share are gradually increasing

7. Banking Sector Development

8. Russian Banking System: Infrastructure Credit system participant quality is gradually improving – the number of credit institutions is decreasing mostly due to “dead” bank exclusion from the market

9. Russian Banking System: Concentration & Growth Results • The Russian banking system grew strongly in 2005: • Assets increased by 36.6% (2004: 27.4%) • Capital increased by 31.2% (2004: 16.2%) • Profit increased by 47.3% (2004: 38.6%) • 2005: ROE 24.2 % (2004: 20.3 %) • 2005: return on lending assets 3.2 % (2004: 2.9 %) • The top 30 largest banks experienced the highest growth level (2005: Assets increased by 48%) Source: Central Bank Dynamics of the Russian banking system Total Loans Total Customer Accounts Total Assets June 2006 % of total % GDP US$ bln % of total % GDP US$ bln % of total % GDP US$ bln Top 20 Banks 66% 20% 162 66% 15% 116 63% 31% 248 20-200 Banks 26% 8% 63 24% 5% 42 28% 14% 109 Other Banks 9% 3% 22 11% 2% 19 10% 5% 39

10. Credit Rating Comparison for Russian Private Banks The leading Russian Banks are highly rated by International Agencies Caa Source: Cbonds, Moody’s, S&P, Fitch

11. MDM among Top Russian Banks Top Russian Banks as of 1Q 2006 * • * Estimate, based on Russian Accounting Standards • ** Excluding subsidiaries

12. Russian Banking System: Foreign Banks in Russia Foreign owned banks are increasing their presence in Russia in terms of assets and number thus establishing a new level of competition Key factors Russian top 30 banks asset structure • The number of foreign-controlled banks in the Russian banking system*, as of April 2006, reached 55. (52 in 2005; 42 in 2004) • The assets of foreign-controlled banks increased by 49.3% (2004: 29.9%) and equity (capital) by 56.4 % (2004: 36.7%) • Non-resident-controlled banks’ share in the banking system's assets grew from 7.6% in 2004 to 8.3% in 2005 and in equity (capital) from 7.8% to 9.3% • Private deposits in non-resident-controlled banks increased in 2005 by 60.0% (2004: 71.9%) *With more than 50% share Source: Central Bank, as of January 1, 2006

13. Russian banking system: Mergers & Acquisitions Increasing M&A activities in past two years Benchmark valuation multiples Top Russian banks • Rosbank  OVK • VTB  Guta Bank; PSB (SPb) • Nikoil  Avtobank;Uralsib Three Major Acquisition Groups Foreign banks • BSGV  DeltaCredit • GE Consumer Finance  Deltabank • Hansabank  Kvest • RaiffeisenBank  Impexbank • EBRD portfolio investment:  13 local banks (2005: 7 banks) • Societe Generale  Rosbank (10%) • OTP Bank  Investsberbank Mid-market local banks • Promsvyazbank  Rostpromstroibank • Petro-Aero Bank  Ruskobank; Inkassbank • Sibacadembank  Uralvneshtorgbank; Mezhtorgbank; Dalvneshtorgbank; Zheldorbank • VEFK  MDM Bank St. Petersburg

14. Banking sector: Investor Friendly?

15. Insufficient Banking Sector contribution to economic growth Bankruptcy procedures needs more transparency Excessive Costs associated with the Banking Sector Low level of creditors’ rights protection The Legal base For a competitive environment is not fully developed Banking Sector: State Policy requires further development The Banking System still needs to deal with a number of problems

16. Banking Sector: Striving for Improvement Both the State Authorities and Russian Banks must combine efforts to bring the Sector in correspondence with high international standards • Improve legislation • Improve Banking regulation and supervision • Develop the Banking sector infrastructure Russian Banks exert every effort to increase the Sector’s investment attractiveness The State pledges to make the following improvements: • ARB (679 banks), «Russia» (350), MICA* (67) and other organizations take an active part in the State policy implementation • Rapprochement of the State and Bank interests • Proactive stance toward public authorities’ initiatives • Banking society members’ balance of interests • Investment attractiveness increase in the external markets *MICA – Moscow International Currency Association

17. Banking Sector: Application of Western Quality Standards

18. Russian banking system: Stakeholders & Western standards Western standards of quality Execs. Vendors Clients Share- holders Russian Bank Managers Media Regulators Line employees Community Competitors

19. Western standards in banking services in Russia: Drivers & Blockers Western standards of quality in Russian banking services • Drivers: • Strong competition • Increase in FDI • High growth levels • Increased ratings • High liquidity • Low interest rates Path of Change • Blockers: • Banking system weaknesses • High fragmentation of Russian banking system • Dominance of state-owned banks • Significant number of small banks • Slow implementation of reforms • Risks level remain substantial Current State

20. Product offering: banks are closer to western standards Still missing sophisticated product lines, Russian banks are closing the gap in product offering moving from “boutique” to mass standardized products Variety of services Support platform Sales channels Process organization Corporate clients Processes Offices • Cash management • Loan products • Liquidity management • Investment banking • Standardized procedures • Widening distribution network: • Branches • Mini-offices Client insight • Demand analysis • Relationship management Retail clients Virtual • Payments • Plastic cards • Loan products • Savings products • Internet banking • Internet trading • Phone banking • Call centres IT • Multifunctional core systems and CRM Private banking Third party Risk management • Wealth management • Agents networks • Credit bureaus

21. Banking in Russia: The Future Over the years several key measures were implemented to improve and increase the importance of the banking system in Russia. • Banking system growth will continue • Four distinct groups will remain on the market. • State-owned banks • Largest private banks • Regional banks • Foreign banks • Conditions for FDI attraction will improve • Transparency in lending institutions' operations will increase • Foreign banks will continue steady growth • Dominance of state-owned banks will remain

22. Moody's Fitch S&P Ba2 / stable BB- / stable B+ / positive Outline: MDM Outline Key Highlights • High international credit ratings • Leading bank in corporate governance practices in Russia (S&P CG Ratio:6.0) • One of the four largest privately owned Russian financial institutions • Universal bank: retail, corporate, investment and private banking • Close to 1 million retail clients • Over 70,000 corporate clients with over 2,000 medium & large active clients • Numerous awards from financial magazines • As of March 31, 2006 (IFRS), MDM FG: • Assets: US$ 5,752 mln • Equity: US$ 963 mln • Net profit for 1Q 2006: US$ 43 mln • ROAE (annualized): 20% • Cost / income: avg.50% • Staff: 5,396