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BULBANK. Levon Hampartzoumian - CEO. 2 nd UCI INVESTOR DAY. Focus on New Europe. London, December 5 th , 2002. Agenda. Why Bulgaria ? Bulbank Key Highlights Key projects and strategies. WHY BULGARIA?. Bulgaria. Year 2001. Macroeconomic stability. 7.9. Population, mln.

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slide1

BULBANK

Levon Hampartzoumian - CEO

2nd UCI INVESTOR DAY

Focus on New Europe

London, December 5th, 2002

slide2

Agenda

Why Bulgaria ?

Bulbank Key Highlights

Key projects and strategies

slide3

WHY BULGARIA?

Bulgaria

Year 2001

  • Macroeconomic stability

7.9

Population, mln

  • Low inflation

1,915

Per Capita GDP, Eur

  • Currency board providing for monetary discipline

4.8

Inflation rate, %

  • Increasing sovereign rating

4.7

Ref. interest rate, %

  • Low-cost manufacturing, opportunity for de-localisation

BB+

S&P country rating

2002E

2003E

2004E

  • GDP growth over av.NE and av.EU

3.7

4.3

5.0

Real GDP growth, %

  • Low inflation

6.5

4.5

4.0

Inflation rate, %

  • Stable interest rates

4.3

4.5

4.6

Ref. interest rate

Source: NE Research Network and Bulbank, based on BNB statistics.

slide4

BANKING SECTOR GROWING FAST,

WITH GREAT POTENTIAL

  • Privatisation of banking sector almost completed. The last one, SSB (13% market share in asset terms), to be privatised in early 2003.
  • More than 80% of assets now owned by foreign investors
  • High concentration, >45% of assets and deposits held by the 3 largest banks
  • Relatively low efficiency (71% in 2001)
  • Fast growing and improving banking sector yet still low penetration and underdeveloped markets

Branches per mln inhabitants

(Loans+Deposits)/GDP

580

203%

272

45%

EU

EU

Bulgaria

Bulgaria

  • Fast increase in volumes with high growth potential
  • Intensified lending in the last 1.5 year, 33% growth in 2001, 40% expected in 2002
  • Retail volumes grow faster than corporate ones
  • Competition driving spreads down

2001

2002E

2003E

2004E

Loans growth(1), %

33.1

40.3

23.3

15.9

Deposits growth(1), %

35.5

12.1

13.3

10.8

Rate on Loans(2), %

13.0

11.7

10.6

9.7

Rate on Dep.(2), %

1.9

1.8

1.8

1.8

Spread(2), %

11.1

9.9

8.8

7.9

(1) Nominal growth

Source: NE Research Network and Bulbank, based on BNB statistics.

(2) End-of-period Banking System data; rates calculated on local currency denominated Loans and Deposits

slide5

Agenda

Why Bulgaria ?

Bulbank Key Highlights

Key projects and strategies

slide6

Private

38%

Affluent

37%

Large

50%

Mid and small

11%

THE LEADING BANK IN BULGARIA

BULBANK

1,376

22%

1,029

21%

256

9%

241

25%

59

31

36%

39

16.8

91

2,070

290,000

259,000

31,000

MARKET SHARES as of Dec. 01

Euro mln(1), as at Sep 02, IAS

Total Assets

mkt share

Deposits

mkt share

Loans

mkt share

o/w Corporate loans

Loans/Deposits, %

Total revenues

Net Income

mkt share

Cost/Income, %

ROE, %

Branches

Employees

Customers

o/w retail

o/w corporate

Ranking(2)

31 Dec 01

1st

1st

2nd

1st

1st

1st

1st

1st

3rd

3rd

4th

  • Leader by size
  • Leader by efficiency
  • Low credit risk, thus good potential for growth
  • Distinctive corporate profile
  • Unravelled leadership in top segments
  • Good positions in mid and small business segment
  • Well developed balanced branch network

(1) Eur 1 = Bgn 1.96, Bgn is pegged to Euro under the Currency Board arrangement.

(2) ROE and cost/income compared only with 10 largest banks.

slide7

POSITIVE PERFORMANCE IN 2002, 15% GROWTH IN OPERATING INCOME

AND 45% GROWTH IN FEE INCOME

Net Interest Income

(IAS, Euro mln)

  • 23% growth in net income for growth in core business revenues
  • Operating income and profitability growth due to 45% increase in fee income (for launch of new products and cross selling thanks to increase of salesforce) offsetting 11% drop in net interest margin (for the fall in international interest rates)
  • Tight cost control benefiting from UCI synergy
  • C/I Ratio improved from 45% to 39%

34

39

Total Revenues

+7.2%

59

-11.2%

55

9M01

9M02

Operating Income

Net Fee Income

+45.1%

16

+14.7%

36

11

31

9M01

9M02

Operating Costs

9M01

9M02

Other Operating Income

9M01

9M02

23

24

62.1%

9

6

-2.8%

9M01

9M02

9M01

9M02

slide8

AHEAD OF THE SYSTEM

IN TERMS OF REVENUE GROWTH,

PROFITABILITY AND EFFICIENCY

(As at September 2002)

Net Income (provision adjusted), y/y % ch.

Net Operating Income,

y/y % ch.

Cost /Income, %

60.4

13.5

14.7

38.9

9.4

5.0

Banking

System

Banking

System

Banking

System

BULBANK

BULBANK

BULBANK

ROAA, %

Net Fee Income,

y/y % ch.

Operating costs, y/y % ch.

8.9

45.1

2.2

1.6

17.9

-2.8

Banking

System

Banking

System

BULBANK

Banking

System

BULBANK

BULBANK

NOTE: Figures as at end of Sept. 2002. Data for the banking system is under NAS. Figures from Bulbank under NAS would be generally slightly better than under IAS, and respectively 16.1% for Net Income, 9.3% for Net Op. Income, 35.7% for Cost/Income, 47.3% for Net Fee Income, 1.7% for Operating costs and 2.7% for ROAA

slide9

ASSET QUALITY IMPROVING, WITH INCREASED COVERAGE RATIOS

Net NPLs and Doubtful Loans as % of Total Loans (eop, Euro mln)

Coverage ratios

152%

142%

6.5%

85.3%

65.0%

2.8%

0.36%

0.43%

2001

2001

9M02

3Q02

restated

Doubtful Loans/

Total Loans

NPLs/

Total Loans

On Gross Doubtful Loans

On Gross NPLs*

Dec. 2001

  • Improved loan-book quality due to successful work outs
  • Improvement of coverage ratios
  • Conservative provisioning, covering also regular exposures calculated on the basis of risk by sector

Sept. 2002

% ch.

(Euro mln)

Total doubtful loans

11.9

6.6

-44.5

o/w NPLs

1.0

1.0

-

slide10

Agenda

Why Bulgaria ?

Bulbank Key Highlights

Key projects and strategies

slide11

MARKED ACHIEVEMENTS WITHIN THE PARTNERSHIP PROGRAMME WITH UCI

RESULTS(1)

KEY PROJECTS

  • New commercial approach implemented with dedicated sales people by segment
  • Accountability and target setting
  • Value added, fee based package products launch
  • Retail reinforcement – loans, utilities, cards, asset management
  • MBO and sales stimulation programs introduction
  • 230 new sales people
  • 44% increase in no. of customers
  • >60% growth in revenues
  • >80% growth in fee income
  • >16K packages sold
  • >20% growth in the amount of cross-border payments
  • 25% Net fee income/Revenues (19.4% in 2000 and 21% in 2001)
  • 150% Net fee income/Personnel costs
  • 200 people with MBO

REVENUES

  • UCI synergy use
  • Cost cutting
  • >2mn cost saving
  • Negotiation power increase

COSTS

  • Low risk of securities portfolio
  • NPL/Loans halved down to below 5%
  • New IT implementation by mid-2003
  • Tight monitoring on all levels with new approach and sophisticated tools
  • New investment policy
  • Credit underwriting
  • New IT
  • Controlling

RISK &

OPERATIONS

(1)Compared to pre-acquisition period (2000).

slide12

STRONG COMMERCIAL APPROACH EXPANDING BUSINESS AND IMPROVING PRODUCTIVITY

RETAIL

No. of customers

(eop, in ths.)

No. of salesforce

(eop)

No. of products sold (1)

12,013

180

259

231

10,305

115

Dec.01

10M02

Sept.02

2001

Dec.01

Sept.02

CORPORATE

No. of active customers

(eop, in ths.)

No. of salesforce

(eop)

No. of contacts (2)

16,655

31

58

26

6,213

31

2001

Dec.01

Sept.02

Dec.01

Sept.02

10M02

(1)Including packages, consumer loans, mortgages and intl.cards. (2) Meetings.

slide13

AMBITIOUS STRATEGIC PLAN

BUSINESS STRATEGY

  • Divisionalisation
  • HNW customer acquisition model
  • Opening of leasing company
  • Asset management products launch (mutual funds, bancassurance, structured depos) and market leadership in the area
  • Value proposition distinctiveness

OPERATIONAL STRATEGY

  • New branch model
  • New credit underwriting system for Corporate customers, pilot project for all UCI NE banks
  • New IT system
  • New risk management system
  • Alternative channels development

PEOPLE

  • Intensified conversion from back-office to front-office
  • Active training and focused career development for talents
  • Outsourcing of non-core activities
slide14

SUMMING UP: BULBANK – BIG,SAFE, SOUND AND INNOVATIVE

STRONG POSITIONING

  • Strong financial standing: high capitalisation, critical mass, low risk on assets, high efficiency, UCI support
  • Distinctive market leadership: 1st bank in asset, deposit, payment, corporate loan, FC operations, upper-end markets terms
  • Deep changes and model: active relationship management on a broad basis, innovative servicing approach and products

SHAREHOLDER COMMITMENT: UCI commitment to Bulgarian economy development and strong monitoring of the bank’s operations and development

CUSTOMER CENTRIC BUSINESS MODEL: knowledge, flexibility, proficiency, tailored approach

AMBITIOUS TARGETS AND DEVELOPMENT PLAN: double digit annual income growth, deeper segmentation, enrichment of value propositions, alternative channels, new IT, fast systems’ upgrade, investment in people

slide16

BULBANK

9M02 INCOME STATEMENT

Ch. %

Sept. 02/

Sept. 01

(Euro mln, IAS)

Ch. % 2001/2000

Dec. 00

Dec. 01

Sep. 01

Sept. 02

Interest margin (incl. div.)

49.7

50.9

2.4

38.7

34.3

-11.2

Net non interest income

26.8

23.0

-14.3

16.3

24.6

50.9

14.8

15.5

4.8

10.8

15.6

45.1

- of which: Fee income

76.5

73.9

-3.5

55.0

58.9

7.2

Total revenues

-34.0

-5.0

-23.6

-22.9

-2.8

-35.7

Operating costs (incl. dep.)

-15.6

-14.2

-9.0

-10.0

-9.7

-3.7

- of which: Staff costs

40.8

39.9

-2.2

31.4

36.0

14.7

Net operating income

-15.3

4.5

-129.5

3.5

5.0

43.4

Net loan loss provisions

79.2(1)

0.4

-99.5

0.3

0

-100.0

Extraordinary income/loss

104.7

44.8

-57.2

35.2

41.0

16.4

Pre-tax profit/loss

-22.9

-9.6

-58.2

-9.9

-9.8

-0.3

Taxes (2)

81.8

35.2

-56.9

25.3

31.2

22.9

Net income

24.5

35.2

43.8

Net income (adj.)(3)

(1) Including EUR 78.4mn gains from sale of equity investments mainly in UBB, HVB Bulgaria and Corporate Commercial Bank.

(2) Statutory tax rate for legal entities: 23.5% (28% until the end of 2000)

(3) Less gains from sale of equity investments

slide17

BULBANK

9M02 BALANCE SHEET

Ch. %

Sept. 02/

Sept. 01

Ch. %

Sept. 02/

Dec. 01

(Euro mln, IAS)

Sept. 01

Dec. 01

Sept. 02

99

118

88

-11.5

-25.7

Cash and deposits with Central Banks

774

759

582

-24.7

-23.2

Bank placements

199

167

239

19.9

43.1

Customer loans

ASSETS

267

281

386

44.3

37.2

Securities

60

60

64

6.8

6.9

Fixed assets

13

12

18

40.1

42.9

Other assets

1,412

1,397

1,376

-2.5

-1.5

TOTAL ASSETS AND LIABILITIES

Deposits:

1,033

1,048

1,024

-0.9

-2.2

- Due to Customers

51

33

24

-52.1

-27.0

- Due to Banks

LIABILITIES

33

35

31

-6.9

-10.6

Reserve fund for possible loan losses

55

30

43

-19.8

45.0

Other liabilities

240

251

253

5.5

1.0

Shareholders’ equity

1,397

1,442

1,412

3.3

TOTAL ASSETS AND LIABILITIES-adj.(1)

2.1

1,048

1,089

3.9

1,033

5.4

Customer Deposits-adj.(1)

(1)With Sept.02 figures recalculated at BGN/USD exchange rate ruling on 31 Dec.01.