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ZAGREBACKA BANKA. Franjo Lukovic - CEO. 2 nd UCI INVESTOR DAY. Focus on New Europe. London, December 5 th , 2002. Agenda. Why Croatia ? Bank’s Key Highlights Key projects and strategies. CROATIA: STABLE ECONOMIC GROWTH AND PERSPECTIVES.

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slide1

ZAGREBACKA BANKA

Franjo Lukovic - CEO

2nd UCI INVESTOR DAY

Focus on New Europe

London, December 5th, 2002

slide2

Agenda

Why Croatia ?

Bank’s Key Highlights

Key projects and strategies

slide3

CROATIA: STABLE ECONOMIC GROWTH AND PERSPECTIVES

  • Strong economic growth with low inflation and interest rates. Sovereign ratings by S&P at BBB-, with stable outlook.
  • Small market but with strong international ties greatly benefiting of international openness.
  • Some control of public expenditure (although not as tight as expected) resulting in lower fiscal deficit. Improvements in trade balance and expected higher levels of FDI.
  • Italy, Germany, Austria and Slovenia as main trading partners.
  • Service sector largely privatised (banking, telecom) with substantial part of the industrial sector still awaiting restructuring (oil, power supply, agriculture)

Croatia

Year 2001

4.4

Population, mln

4,961

Per Capita GDP, Eur

2.6

Inflation rate, %

3.2

Ref. interest rate(1), %

BBB-

S&P country rating

  • Sustained GDP growth with inflation under control.
  • Highest growth rates are expected in construction, trade, tourism and financial services.
  • FDIs likely to increase as Croatia moves closer to the EU, and once it joins CEFTA(2), becomes part of a free trade zone covering nearly all of eastern and southern Europe.

2002E

2003E

2004E

3.7

3.8

4.4

Real GDP growth, %

2.4

3.0

3.0

Inflation rate, %

2.0

2.4

2.4

Ref. interest rate, %

(1) 1W ZIBOR, interbank money market rate

(2) Central European Free Trade Agreement

Source: NE Research Network

slide4

HIGHLY COMPETITIVE BANKING SECTOR, LARGE GROWTH POTENTIALS

  • Bank consolidation and increased foreign ownership, improved profitability, asset quality, capitalisation and liquidity.
  • Croatian banking sector has one of the highest foreign ownership percentage (90,8%) in CEE
  • Highly concentrated industry: 47% of total banking assets concentrated at two largest banks (ZABA, PBZ) and 60% at 4 largest banks.
  • Rapidly growing banking, with substantial increase in 2001 thanks to Euro effect.
  • Large growth potentials to reach EU level in terms of banking penetration (loans and deposits ratio to GDP, currently 1/3 of EU average).

Branches per mln inhabitants

(Loans+Deposits)/GDP

580

203%

185

106%

EU

EU

Croatia

Croatia

  • Lending - fast growth in 2001 and 2002
    • Retail: strong demand of housing loans
    • Corporate: sustained increase as a result of economic growth

2001

2002E

2003E

2004E

Loans growth(1), %

23.2

19.5

12.7

11.5

Deposits growth(1), %

47.4

7.4

8.4

8.4

Rate on Loans(2), %

  • Deposit growth boosted by EMU currencies conversion into Euro; further increase expected due to economic recovery and increase in personal income

n.a.(3)

9.0

8.2

8.2

Rate on Dep.(2), %

2.3

1.9

1.9

n.a.(3)

Spread (2), %

n.a.(3)

6.7

6.3

6.3

  • Competition driving down margins and increasing customers expectations.

(1) Nominal growth

(2) End-of-period Banking System data; rates calculated on avg LC+FX indexed and FX denominated Loans and avg LC+FX Deposits

(3) Not available due to change in methodology which makes old data not comparable

Source: NE Research Network

slide5

BOSNIA AND HERZEGOVINA - A NEW HOME MARKET FOR ZAGREBACKA BANKA

  • FDIs in the banking system intensified, with over 68% of banking sector in the hand of foreign investors.
  • Banking system restructuring continues - further restoration of confidence
  • Good financial results in the first half 2002
    • sustained growth of corporate (+31%) and retail (+54%) loans;
    • ...not followed by sufficient growth of deposits;
    • increased profitability.
  • Strong growth potential - significant amount of foreign currency held by citizens outside the domestic banking system and over 50% of citizens don’t do business with banks

BOSNIA AND HERZEGOVINA

2000

2001

2002E

2003E

Real GDP, % yoy

4,5

2,3

2,3

4,1

Industrial production % yoy

8,0

9,0

8,0

8,0

Inflation (CPI) yoy, avg

5,6

3,3

2,3

1,8

Sources: IMF; Central bank of BiH.

  • Tax and structural fiscal reforms are in act
  • Privatisation of state-owned companies / banks
  • Constant decrease in foreign aid
  • Economy recovery is expected in later years (2004/05) - according to IMF

Zagrebačka banka BH and Universal banka Sarajevo, EUR 30mln or 9% of total revenues

  • Strategy / focus on:
    • Consolidation/optimisation of existing presence
    • development of new products and quality of service improvement, further development of client segmentation
    • cost reduction
    • particular focus on asset quality and risk management system

Market share

Zagrebačka

Universal banka

in Federation BiH (%)

banka BH

Sarajevo

2000

2001

2000

2001

Assets

15,1

14,2

6,9

7,3

Deposits

17,6

17,0

8,4

8,2

Loans

11,2

12,6

9,3

9,8

Sources: Banking Agency of Federation BiH, ZABA BH, UBS

slide6

Agenda

Why Croatia ?

Bank’s Key Highlights

Key projects and strategies

slide7

THE LEADING BANK IN GROWING MARKETS WITH ALMOST 9 MN INHABITANTS

Croatia

Zagrebacka banka Group

Bosnia-Herzegovina

Euro mln, consolid. figures as at Sep 30, IAS

  • Strongest position in traditional banking services: retail and corporate loans, savings and payment services (mkt shares Croatia: corporate loans 23%, retail loans 26%, corporate deposits 32%, retail deposits 35%; mkt shares BiH: corporate loans 21%, retail loans 25%, corporate deposits 19%, retail deposits 33%)
  • Broad client base and excellent distribution capacities: 214 branches, well developed direct banking channels (329 ATMs, phone banking, leading internet banking provider: 33,000 corporate and 14,000 retail clients)
  • Growth potential in innovative and wealth managementproducts (investment and pension funds)

Total Assets 6,748

Deposits 5,348

Loans 2,989

Loans/Deposits, % 55.9

Total Revenues 316

Net Income 96

Branches 214

Employees 5,800(1)

Customers 1.6 mln

o/w retail 1.5 mln

o/w corporate 87,000

Cost/income, % 63

ROE, % 21.5

Deposits Mkt Share, % 34

Loans Mkt Share, % 24

(1) of which 450 in non-core businesses (tourism, etc.) to be divested

slide8

STRONG PERFORMANCE CONTINUED DURING 2002

Net Interest Income

+3.6%

(Euro mln)

  • Operating income and profitability increased due to continued growth of core business and strong cost control.
  • ROE improved for +40% yoy from 15.3% to 21.5%.
  • C/I Ratio improvement from 64% to 63%
  • Excellent commission and fee income growth (+33.4% yoy) above predicted levels.
  • Net interest income around last year’s performance, but above budgeted figure despite continuing decrease of Net Interest Margins.
  • Strong growth of loans (corporate +28%, retail +25% yoy), increase in transaction volumes (card business, loans and payment services).

150

145

Total Revenues*

+14.2%

316

277

9M01

9M02

Operating Income

Net Commission and Fee Income

+33.4%

+44.1%

71

119

54

83

9M01

9M02

Operating Costs

9M01

9M02

+1.5%

Other Operating Income

9M01

9M02

197

194

+20.8%

95

78

ZABA positive year end results are expected at around +50% level yoy and will confirm our strong position.

9M01

9M02

9M01

9M02

* Including extraordinary items

slide9

ASSET QUALITY IMPROVING, WITH INCREASED COVERAGE RATIOS

Net NPLs and Doubtful Loans as % of Total Net Loans

Coverage ratios

71.9%

71.4%

63.0%

62.4%

7.5%

5.0%

5.0%

3.4%

2001

2001

9M02

9M02

restated

restated

Net Doubtful Loans/ Total Net Loans

Net NPLs/ Total Net Loans

On Gross Doubtful Loans

On Gross NPLs

% ch.

on

Dec.’01

Dec. 2001

  • Improved loan-book quality due to effective recovery actions and NPL repayments through collateral activation
  • Significant new loans inflow
  • Improvement of coverage ratios

9M 2002

(Euro mln)

Net Doubtful Loans

170

163

-4.1%

Net NPLs

112

103

-8.7%

slide10

Agenda

Why Croatia ?

Bank’s Key Highlights

Key projects and strategies

slide11

PARTNERSHIP PROGRAMME WITH UCI LAUNCHED ON MAY 15, 2002

KEY PROJECTS UNDERGOING:

  • Client segmentation (corporate & retail) with divisionalisation to be completed by end 2003
  • Sales force effectiveness strengthening with redeployment from back to front office
  • Introduction of new products and further development of product companies (funds, bancassurance, structured Term Deposits, leasing, derivatives)
  • Cross selling targets
  • Further development of e-zaba to fully exploit revenues growth potentials from liberalisation of payment services
  • Creation of International Desk (covering Italian and New Europe business)

REVENUES

  • Centralised procurement and establishment of dedicated cost management structure
  • Progressive headcount rationalisation
  • Exploit Group procurement synergies
  • Merger of CRT Zagreb into ZABA (additional consolidation expected in the future to foster additional costs improvement)

COSTS

  • New retailunderwriting and corporate monitoring tools
  • Redesign of credit functions, in charge of developing the pilot project for management systems for all UCI NE banks
  • Centralised market risk management

RISK

slide12

STRATEGIC GUIDELINES TO ENSURE FOR FUTURE GROWTH, EFFICIENCY AND PROFITABILITY

What we have already accomplished

South and Southeast Europe

Excellent platform for the entire region

BiH

3rd step

What we intend to accomplish together with UniCredito

Croatia

2nd step

1st step

  • Divisionalisation with segment based service models
  • Focus on affluent, small business and private
  • Improve penetration, share of wallet and revenues per client
  • Cost control and development of alternative channels
  • Development into clear regional leader with consolidation of Bosnian operations and further growth in the region

Leadership position in almost all business segments through organic growth and acquisitions

New home markets through Zagrebacka banka BH Mostar and Universal banka Sarajevo

slide13

A dominant player in a small, but rapidly growing market (rapid catch up process after several years of disarray) ...

  • ... operating in a rapidly growing banking market with double digit volume growth although subject to some spread compression due to increased competition...
  • ..... with scope for relevant profitability increase, via increased commercial effectiveness, improvement of loans to deposits ratio and improvement in cost income through tight cost control
  • Strategy focused on significant profitability increase (revenues increase especially on retail via specialised segment based service model and cost cutting) ....
  • ... and on leveraging on strong market positioning to acquire dominant role in the region, where rapid growth is expected in the future (Bosnia almost 5 mln inhabitants, Serbia almost 10 mln inhabitants) to ensure steady EPS growth for the future

SUMMING UP

slide15

ZABA GROUP 9M2002 CONSOLIDATED INCOME STATEMENT

Ch. %

Sept. 02/

Sept. 01

(Euro mln, IAS)

Ch. % 2001/2000

Dec. 00

Dec. 01

Sep. 01

Sept. 02

Interest margin

164

204

+24.29

145

150

+3.56

Net non interest income

248

155

-37.36

132

166

+25.96

412

359

-12.80

277

316

+14.21

Total revenues

-229

-247

+7.70

-194

-197

+1.46

Operating costs (incl. dep.)

-107

-118

+10.88

-85

-89

+5.35

- of which: Staff costs

183

113

-38.45

83

119

+44.14

Net operating income

-27

-22

-19.44

-3

3

-208.60

Net loan loss provisions

-10

-9

-10.87

-7

1

-110.02

Other provisions

0

0

0.00

0

0

0.00

Extraordinary income/loss

146

82

-43.92

73

123

+68.98

Pre-tax profit/loss

-10

-17

+80.05

-19

-23

+20.98

Taxes (1)

136

65

-52.64

54

100

+85.93

Net income

-4

-2

-60.87

-1

-3

+320.53

Minorities

Net attributable income

128

61

-52.56

53

96

+81.15

(1) Statutory tax rate for legal entities: 20% (35% until the end of 2000)

slide16

ZABA GROUP 9M2002 CONSOLIDATED BALANCE SHEET

Ch. %

Sept. 02/

Sept. 01

Ch. %

Sept. 02/

Dec. 01

(Euro mln, IAS)

Sept. 01

Dec. 01

Sept. 02

721

1,210

787

+9.20

-34.95

Cash and deposits with Central Banks

2,979

3,375

3,895

+30.75

+15.41

Loans due from and placements to:

2,184

2,268

2,989

+36.85

+31.78

- Customers

795

1,107

906

+13.97

-18.13

ASSETS

- Banks

650

803

1,259

+93.67

+56.69

Trading and avail.-for-sale securities

256

263

289

+12.74

+9.68

Fixed assets

905

830

517

-42.79

-37.64

Other assets

5,511

6,482

6,748

+22.44

+4.10

TOTAL ASSETS AND LIABILITIES

4,199

5,143

5,549

+32.15

+7,91

Deposits:

4,143

5,064

5,348

+29.08

+5.61

- Due to Customers

0

0

0

0.00

0.00

- Securities in issue

56

79

201

+257.90

+155.72

- Due to Banks

0

0

0

0.00

0.00

Reserve fund for possible loan losses

LIABILITIES

0

0

0

0.00

0.00

Specific reserves

788

796

579

-26.45

-27.18

Other liabilities

0

0

0

0.00

0.00

Subordinated debt

30

32

33

+9.28

+0.28

Minority interest

494

511

586

+18.68

+14.76

Shareholders’ equity

slide17

BANKING SECTOR RANKINGS BY TOTAL ASSETS

Assets

Market Share

in total assets (%)

Bank

Strategic owner

(HRK,bln)

09/2002

09/2002

2001

2000

Zagrebacka banka

UniCredito

42.4

26.0

27.7

29.1

Privredna banka

Intesa BCI

30.6

18.8

18.6

18.4

Raiffeisen banka

Raiffeisenbank

12.8

7.9

6.5

4.6

Splitska banka

HypoVereinsbank

9.4

5.8

6.6

7.2

Hypo Alpe-Adria banka

Hypo Alpe-Adria

9.3

5.7

4.3

3.4

Rijecka banka

Erste bank

8.2

5.0

7.1

7.1

Erste & Steiermark. banka

Erste bank

5.9

3.6

3.3

2.7

Hrvatska postanska banka

State owned

5.4

3.3

1.8

1.6

Nova banka

Charlemagne

5.2

3.2

2.0

-

Varazdinska banka

ZABA

3.7

2.2

2.4

2.6

Other banks

-

30.1

18.5

19.7

22.0

Total

163.0

100%

100%

100%

slide18

ZAGREBACKA BANKA GROUP STRUCTURE (CORE BUSINESS)

Zagrebacka banka is a licensed bank operating in Croatia and the holding company for the Zagrebacka banka Group

BANKING (ownership)

Varazdinska banka, Croatia (93.8%)

Zagrebacka banka BH Mostar, Bosnia-Herzegovina (79.4%)

Universal banka Sarajevo, Bosnia-Herzegovina (99.6%)

FINANCIAL SERVICES

Prva stambena štedionica - building society (100%)

ZB Invest - investment fund management (100%)

ZB Brokeri - brokerage (100%)

ZANE - real estate agency (100%)

ASSOCIATED COMPANIES

Allianz Zagreb - insurance (48%)

Allianz ZB - pension fund management (49%)

slide19

DIVERSIFIED GROUP WITH COMPLEMENTARY PRODUCT COMPANIES

Zagrebacka banka is a universal bank operating in Croatia and the holding company of Zagrebacka banka Group

Non-core investments

  • TOURISM

EUR 32 mln/9.97% of revenues

  • Istraturist Umag, one of the leading hotel operators on the Adriatic coast, to be divested
  • BANKING

EUR 280 mln/88.22% of revenues

  • Zagrebacka banka (69.3% of revenues, 27.8% mkt share in total assets)
  • Varazdinska banka (6.86% of revenues, 2.5% mkt share in total assets)
  • Zagrebačka banka BH Mostar, BiH (5.94% of revenues, 14,2% mkt share in total assets)
  • Universal banka Sarajevo, BiH (3.44% of revenues, 7.3% mkt share in total assets)
  • Prva stambena stedionica - building society (1.09% of revenues, 42% mkt share)
  • ZB Invest - investment fund management company (0.54% of revenues, 54% mkt share)
  • ZB Brokers - brokerage (0.43% of revenues, 26% mkt share)
  • ZANE - real estate services (0.59% of revenues)
  • INVESTMENT PROPERTY

EUR 6 mln /1.82% of revenues

  • Centar Kaptol - commercial centre
  • CGP - property development
  • Strongest position in traditional banking services: retail and corporate loans, savings and payment services (mkt shares Croatia: corporate loans 23%, retail loans 26%, corporate deposits 32%, retail deposits 35%; mkt shares BiH: corporate loans 21%, retail loans 25%, corporate deposits 19%, retail deposits 33%).
  • Broad client base and excellent distribution capacities: 214 branches, well developed direct banking channels (329 ATMs, phone banking, leading internet banking provider: 33.000 corporate and 14.000 retail clients).
  • Excellent potential in innovative and wealth managementproducts (investment and pension funds)
slide20

WELL BALANCED AND DIVERSIFIED CORPORATE LENDING PORTFOLIO

Corporate Net Loan Portfolio (Bank) Structure by Industry

31/12/2001

30/09/2002

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