THE UKRAINIAN BANKING SYSTEM

1. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest THE UKRAINIAN BANKING SYSTEM

2. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukraine: number of registered and functioning banks Number of functioning banks still growing In 2005, 6 new banks registered, in 9 months of 2006 – another 9 (Sygmabank, ”Prestige”, Delta Bank, AIC-Bank, Partner Bank, Bohuslav Bank, ”Concord”, Ipobank, Finansbank)

3. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Banks with foreign participation

4. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Share of foreign investors in UA banks’ statutory capital (%)

5. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Major acquisition of stakes in Ukrainian banks by foreign investors in 2005-2006 UA banks abroad: Ukrprombank buys 35% of Arminvestbank, Pivdennyi Bank buys Regional Investment Bank (Latvia)

6. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: Total Assets (gross), bn UAH Dynamic growth

7. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Top Ukrainian banks by Assets as of 1 January 2005 Most of large banks grow quicker than industry average

8. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: Loans/1 (bn UAH) Retail loans became main driver of lending growth

9. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: Loans/2 (bn UAH) Average maturity of loans is shortening

10. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Improving loan performance

11. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: Deposits (bn UAH) All deposit categories grow quickly, most dynamically private term deposits

12. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Household deposits: currency structure Increasing share of savings in FX

13. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Top-10 Ukrainian banks by deposits (as of 01.07.2006) Clear distinction between retail, corporate strategies

14. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: Equity (M UAH) Equity increases quickly, in line with T.A.

15. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Top Ukrainian banks by equity (M UAH) Ukrexim, Raiffeisen UA (OTP), are relatively better capitalised (Equity/T.A.) than their peers. Ukrprombank is the only in TOP-10 by equity not ranked in Top-10 by T.A.

16. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: after-tax profit (M UAH)

17. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest TOP-10 Ukrainian banks’ H1 2006 profit (M UAH) Substantial differences in the TOP-10 peer group

18. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest TOP-10 Ukrainian banks by H1 2006 profit (M UAH)

19. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: annualised ROA in % (for gross assets) Quick improvementof profitability

20. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Ukrainian banks: annualised ROE in % Quick improvementof profitability

21. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest Top-10 Ukrainian banks by ROA (net assets) in % Only a few of the largest banks have above-the-average profitability

22. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest • Events 2006 • BIG Energy Bank • Stabilisation credit by NBU to Express-Bank • Restrictions by NBU on operations of Novyi Bank and Stolychnyi Bank • Small-scale Harant Bank collapses, NBU introduces temporary administration in Kyiv Universal Bank • Interkontynentbank experiencing solvency problems

23. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest • Positive factors • Proven crisis management ability of NBU • Steady growth of assets, deposit base, equity • Improving loan portfolio quality • Tightening of capital requirements by NBU • Increase of foreign ownership results in higher competition, better management skills, improvements in risk management • Negative factors • Quick increase of lending may raise concerns over banks’ risk management systems • In case of economic downturn, asset quality may suffer in particular in Kiev’s inflated housing market • In many cases, generally sound capital ratios are undermined by lack of transparency of ownership • In many of the banks high overhead costs still result in relatively low profitability

24. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest • Business risks: • Opaque ownership • Level of owners’ support untested • Fragmented corporate client base • Aggressive growth strategies • Financial risks: • High credit risk concentrations • Significant exposure to related parties • Concentrated and volatile corporate customer base • Low capitalization • Progressively growing operating costs • Profitability generally low

25. 15th BACEE Country and Bank Conference 14-16 November 2006, Budapest • Expected tendencies • Further increase of foreign ownership • M&A tendency to continue • Slow consolidation may speed up • Decreasing margins to force banks to improve cost control • Planned change in banking law • Foreign banks to be authorised to open branches in UA, subject to: • Co-operation of country of registration with FATF • Minimum statutory fund EUR 150 M • Unconditional guarantee of mother bank for the branch’s liabilities