Financing in Serbia 15 th European Annual Meeting European Consultants Unit

1. Financing in Serbia 15th European Annual Meeting European Consultants Unit

2. TABLE OF CONTENTS • Development of Banking Sector • Banking and Economy • Development of Raiffeisenbank a.d. • Precondition of Financing & Limitations • Outlook

3. DEVELOPMENT OF BANKING SECTOR Prior to Political Changes in October 2000 • Steady deterioration in the past 12 years prior to political changes: • Large number of banks • Majority of banks undercapitalized • Most banks overstaffed • Banking sector small and not active enough • Politically directed loans dominate the market • Only basic banking products offered • Lack of public trust in the banking sector

4. DEVELOPMENT OF BANKING SECTOR After Political Changes • NBS creates the basis for healthy development of financing sector • Significant reduction in number of banks through mergers & closures: Beobanka, Beogradska banka, Jugobanka, Investbanka.. • Increased demand in terms of capital and quality • Level of trust increased • Increase in deposits volume: • June 2001 total retail deposits reached EUR 31 mio • September 2006 total retail deposits over EUR 2,74 bn • Increase in loans volume: • Until 2001 loans to customers were very modest • During the last 3 years loans volume is increasing • Payment system transferred to commercial banks • Ownership structure of banks changed

5. TABLE OF CONTENTS • Development of Banking Sector • Banking and Economy • Development of Raiffeisenbank a.d. • Precondition of Financing & Limitations • Outlook

6. BANKING AND ECONOMY Banks Assets - Share in GDP CONCLUSION: Due to the closure of large banks and restructuring process undergoing in state-owned banks in Serbia the banks asstets‘ participation in Serbian GDP has declined. Nevertheless, result of new entrants into Serbian banking sector, this ratio is expected to increase.

7. BANKING AND ECONOMY Total Credits - Share in GDP CONCLUSION: Evident decrease of this indicator is a result of assets restructuring of state-owned banks (i.e. Write-offs of bad loans). Following the resructuring of banking sector and presence of foreign banks, participation of total credits in GDP has begun to increase (126 % YoY 2003/04)

8. BANKING AND ECONOMY Retail Loans - Share in GDP CONCLUSION: Retail market segment is the most dynamic in term of growth rates. The large increase is primarily generated through much larger supply of retail loans in recent years. There is still enough scope for further growth.

9. BANKING AND ECONOMY 1M BELIBOR

10. BANKING AND ECONOMY EUR/CSD ANALYSIS AND FORECAST • In 2005 CSD nominal depreciation towards EUR was 8.4%, effective depreciation was amounting to 7% • In 2006 up to now CSD depreciated for 1.29% • It is expected that the EUR/CSD would be around 87.5-88.5 level at the end of 2006 • Expectations are that CPI would be in range 9.5%-13.5% This commentary is for information only and the comments and forecasts are intended to be of a general nature and are current as at the date of issue. Issued by Raiffeisenbank A.D., Belgrade who takes no responsibility for any individual investment decisions based thereon. This documentation is not intended as an offer, solicitation or recommendation to buy or sell currency. Information is obtained from sources that are believed to be reliable but their accuracy cannot be guaranteed.Relevant economic data has been taken from Statistical gazette of NBS, Economical gazette of NBS, Ministry of finance of Serbia internet page, NBS internet page, Republic of Serbia statistic department.

11. Market position and growth rates Market- position - No. of NWBs Bosnia and Herzegovina Albania 3 Serbia - Kosovo 8 (1) Top 1 Belarus Romania Slovakia Croatia Bulgaria 6 - 3 Top 4 Hungary Czech Rep. (2) Ukraine Slovenia Russia (3) 4 >6 Poland Ø EU-12 3,6% p.a. > 0% 2% 4% 6% 8% 10% 12% Average nominal GDP-growth 2004e – 2007 p.a. ____________________ (1) av. nom. GDP-growth 2004e-2007e (p.a.): 19,0 % (2) av. nom. GDP-growth 2004e-2007e (p.a.):14,0 % (3) av. nom. GDP-growth 2004e-2007e (p.a.):14,4 %

12. TABLE OF CONTENTS • Development of Banking Sector • Banking and Economy • Development of Raiffeisenbank a.d. • Precondition of Financing & Limitations • Outlook

13. RZBGroup in CEE

14. RAIFFEISENBANK a.d. Belgrade • First bank established with 100% foreign capital in the country • The Bank‘s shareholders: • Raiffeisen International • IFC, World Bank Group • Equity – EUR 200 mio • More than 365,000 clients • 54 branches • Universal bank for4main business segments: • Corporate Banking • Retail Banking – Private individuals • Retail Banking – SMEs (small & micro enterprises and professionals) • Treasury & Investment Banking

15. TOP 15 BANKS - by total assets As at:30/06/2006 in million EUR Source:NBS, under local statutary requirements, prepared by: Raiffeisenbank

16. TABLE OF CONTENTS • Development of Banking Sector • Banking and Economy • Development of Raiffeisenbank a.d. • Precondition of Financing & Limitations • Outlook

17. Preconditions for financing-limitations • Profile of the borrower: • Privately owned companies with undisputable ownership rights • Subsidiaries of Multinationals • State owned and mixed companies with good prospects of privatization • Track record of at least 2-3 years • Credit profile • Purpose: working capital financing, financing of investments, project/trade financing • Amounts: up to EUR 50 mio (current legal lending limit) • Tenors: working capital financing: up to 2y • investments/project financing: up to 10y • Collateral: Mortgage, pledge on equipment and inventory, bank/corporate guarantees and cash deposits, assignment of receivables, unsecured etc

18. Preconditions for financing-limitations • Limitations • Country risk: maximum tenor, costs of refinancing, maximum country limit • Lack of country-wide land register • Lack of available construction/industrial land in towns • Legal restrictions: Law on Foreign Credit Transactions, necessity of registration of international financing with National Bank of Serbia (reduction of flexibility) • Costs of refinancing: mandatory reserve costs (60%), costs for political risk • Still limited transparency of balance sheets but strongly improving • Improvements • Significance of balance sheet, International Accounting Standards • Positive track record with the bank, willingness and capability to repay • Increasing of competition in the banking area

19. TOP 15 BANKS - by total loans As at:30/06/2006 in million EUR Source:NBS, under local statutary requirements, prepared by: Raiffeisenbank

20. TABLE OF CONTENTS • Development of Banking Sector • Banking and Economy • Development of Raiffeisenbank a.d. • Precondition of Financing & Limitations • Outlook

21. Outlook - Plans • Outlook • Increased competition due to entrance of new banks into the market • Increased mandatory reserve requirements • Positive development of the country – current country rating: Standard & Poors BB- • More foreign Greenfield investments expected • EU entry and further stabilization expected on mid term • Summary Serbia is no longer a high risk country, currently ideal proportion between opportunity and risk

22. Thank you for your attention!