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ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007, London
Strategic consistency and successful executionAndreas Treichl, CEO, Erste Group
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution2
DisclaimerCautionary note regarding forward-looking statements
− THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLYVERIFIED AND NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE ASTO, AND NO RELIANCE SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY, COMPLETENESSOR CORRECTNESS OF THIS INFORMATION OR OPINIONS CONTAINED HEREIN.
− CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTUREEXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ONMANAGEMENT’S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWNRISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OREVENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCHSTATEMENTS.
− NONE OF ERSTE BANK OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALLHAVE ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSSHOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISEARISING IN CONNECTION WITH THIS DOCUMENT.
− THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE ORSUBSCRIBE FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALL FORM THE BASISOF OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENTWHATSOEVER.
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution3
Presentation topics
−Continued strategic consistency
−Setting the scene for future growth
−Summing up the region
−Outlook and targets
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution4
Erste Group strategy –Defining and sticking to a clear strategy
Value creation for shareholders
Consistent but evolving strategy since IPO in 1997
Businessfocus:
RetailBanking
Geographicfocus:
Central andEasternEurope
Efficiencyfocus:
New GroupArchitecture
New GroupArchitecture
Projects
NewGroup
Structure
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution5
Business focus –Retail banking
−Erste Group – a CEE retail powerhouse− We benefit uniquely from our low risk exposure to
the fastest growing EU-markets of Central andEastern Europe− No 2 in Austria− No 1 in the Czech Republic− No 1 in Romania− No 1 in Slovakia− No 2 in Hungary− No 3 in Croatia− Top 10 in Serbia− Start-up in the Ukraine
Among the top CEE banks interms of customers (million)*
8.2
8.4
10.0
12.1
24.0
16.1
KBC
SocGen
OTP
Raiffeisen
Erste Bank
Unicredit
Retail loan market shares in 2006
31.6%
10.6%
25.1%26.0%
18.8%
12.0%
0%5%
10%15%20%25%30%35%
Austria Czech R Slovakia Romania Hungary Croatia
*) Customer numbers based on latest available company data: UCI figure excludes Italy and Germany; SocGen includes Africa and Mediterranean basin.
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution6
Geographic focus –Central and Eastern Europe
Total population: 120m
Bankable population: 92m
EG customers: 16.1m
Key market stats
EU resident customers: 15.1m
Indirect presence
− Integrated savings banks sector with closer collaboration in Austria ahead−Ample growth opportunities across the whole banking portfolio−New group structure deployed to better capture growth opportunities
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution7
NGA initiatives launched in 2004 with the objective of transforming a “federation ofbanks” into a “real” group− Joint effort by major Erste Group banks in five key markets
(EB Austria, CS, SLSP, EBH and EB Croatia)− Selective participation by recently acquired group banks
(BCR, EBUA, EB Serbia)
Three years into the programme, most NGA initiatives show very positive results andare close to completion− Budgeted pre-tax P&L effect at YE 2007: EUR 205m− 2008 target (EUR 270m) within reach− Most projects closed, remaining tasks transferred to line management
New Group Structure introduced as a logical next step to build on and acceleratecurrent and future efficiency efforts− Tighter control of operating performance and synergies delivery− Improved execution power through dedicated responsibilities (CFO/CPO(1), COO)
Efficiency focus –New group structure follows NGA initiatives
(1) CPO: Chief Performance Officer
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution8
SteeringFunctions
Efficiency focus –Clearly defined new group structure
DivisionalizedBusinesses
Group BoardHeadGCIB(1)
Kinský
HeadGM(2)
Hochstrasser
COO
Juranek
CRO
Spalt
CEO
Treichl
CFO/CPO(3)
Kisbenedek
Retail & SME Business
Center FunctionsInfrastructure
(3) CPO: Chief Performance Officer(2) GM: Global Markets/Treasury(1) GCIB: Group Corporate & Investment Banking
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution9
Presentation topics
−Continued strategic consistency
−Setting the scene for future growth
−Summing up the region
−Outlook and targets
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution10
Why did we go into CEE? –Credit catch-up potential
Per capita indebtedness in CEE (2006)
32.2
5.8 5.4 5.0 3.61.3 0.9 0.8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Austria Croatia Hungary Czech R Slovakia Romania Serbia Ukraine
in E
UR
thou
sand Developing
transformationeconomies
Emergingtransformations
economies
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution11
Why did we go into CEE? –The mortgage loan opportunity
Retail loan penetration - Romania
1.4%3.8% 4.8%
7.4%
11.5% 12.4%
2.3% 2.3%0.0% 0.0%
1.4% 1.8%
0%
3%
6%
9%
12%
15%
2002 2003 2004 2005 2006 Jun 07
Household loans/GDP Housing loans/GDP
Retail loan penetration - Czech Republic
7.2%9.1%
11.1%13.8%
16.5% 17.1%
11.5% 12.1%
4.5%6.0%
7.4%9.4%
0%
5%
10%
15%
20%
2002 2003 2004 2005 2006 Jun 07
Household loans/GDP Housing loans/GDP
Retail loan penetration - Hungary
8.5%12.4%
14.5%17.2%
19.9% 19.9%
11.4% 11.0%
4.5%8.0% 9.2% 10.4%
0%
5%
10%
15%
20%
25%
2002 2003 2004 2005 2006 Jun 07
Household loans/GDP Housing loans/GDP
Retail loan penetration - Slovakia
5.5%7.0%
8.7%11.3%
13.5% 13.7%
5.3%7.5%
1.1% 2.0% 2.9%4.3%
0%2%4%6%8%
10%12%14%16%
2002 2003 2004 2005 2006 Jun 07
Household loans/GDP Housing loans/GDP
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution12
Why did we go into CEE? –The fund management opportunity
Funds under management/capita (2006)
0.9 1.00.7 0.6
0.0 0.0
20.2
0.0
1.0
2.0
3.0
Austria Czech R Hungary Slovakia Croatia Serbia Romania
in E
UR
thou
sand
25.0Developing
transformationeconomies
Emergingtransformation
economies
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution13
Setting the scene for future growth –EU membership, emerging markets opportunity
Population: 10.1m
Hungary
FUM/capita: 1,000Housing/GDP: 12%
Population: 10.2m
Czech R
FUM/capita: 900Housing/GDP: 12%
Population: 5.4m
Slovakia
FUM/capita: 700Housing/GDP: 5%
Population: 4.4m
Croatia
FUM/capita: 600
Housing/GDP: 15%
Population: 7.5m
Serbia
FUM/capita: nmHousing/GDP: 3%
Population: 21.6m
Romania
FUM/capita: 7Housing/GDP: 2%
Population: 47.0m
Ukraine
FUM/capita: nmHousing/GDP: nm
Population: 8.3m
Austria
FUM/capita: 20,300
Housing/GDP: 23%
Population: 314m
Euro zone
FUM/capita: 20,200
Housing/GDP: 48%
FUM = funds under management in EUR
Housing/GDP = Housing loan penetration
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution14
Setting the scene for future growth –All buildings blocks are in place
− Favourable macro environment in CEE− Real GDP growth of 4-8% in most CEE markets− Continued strong FDI inflows− Euro adoption in most CEE countries within the
foreseeable future
− Superior customer base in terms of futurepotential− 16.1 million retail customers− Under penetrated banking markets
− Foundation for above-average growth isunder-penetration in key product areas− Case study: Ceska sporitelna
− 5m customers− Market share in mortgage loans: 34%− # of disbursed mortgages: 80 000
− Outperforming the fastest-growingmarkets in the EU
20.0
16.1
2007 2010e
Fast growing customer base
# of retail customers in million
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution15
“Tuning the Engine!”
Capture low-hanging fruit
- Build-up of Group Divisions
- Steering/optimizing of riskapproach/appetite
- Stronger alignment of IT landscape
Clarify responsibilities andimprove transparency
- Holding responsibilities- Capital Markets/Treasury- Large Corporate Business- Steering, Risk, Infrastructure
- Local responsibilities- Retail- SME
Reward performance
- EVA replaces local RoE targets
- Renewed focus on value creation
- Increased attention on people andleadership development
Monitor performance
- Putting Group Performance Modelinto action
- Regular Performance Dialogues ofCPO with local banks
Setting the scene for future growth –Realising the potential through new Group structure ERSTE GROUP
ERSTE GROUP
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution16
Presentation topics
−Continued strategic consistency
−Setting the scene for future growth
−Summing up the region
−Outlook and targets
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution17
Core region –Economies continue to outgrow EU average
Key economic indicators
8.69.8
11.012.2
13.74.6%
6.5% 6.4%
4.1%5.4%
02468
10121416
2004 2005 2006 2007e 2008e
in E
UR
thou
sand
0%
2%
4%
6%
8%
GDP per capita Real GDP growth
CZ – Short term growth to moderate due to tax reform Key economic indicators
6.37.1
8.110.0
11.3
5.4% 6.0%
8.3%7.1%
8.9%
0
2
4
6
8
10
12
2004 2005 2006 2007e 2008e
in E
UR
thou
sand
0%
2%
4%
6%
8%
10%
GDP per capita Real GDP growth
SK – Record growth driven by foreign & domestic demand
Key economic indicators
8.8 8.910.3 10.8 11.6
4.1% 3.9%
2.2%
3.9%3.0%
02468
101214
2005 2006 2007e 2008e 2009e
in E
UR
thou
sand
0%
2%
4%
6%
8%
GDP per capita Real GDP growth
Hungary – Slow down due to austerity package butrecovery expected for 2008
Key economic indicators
6.5 7.17.8 8.4
9.14.3% 4.3%4.8% 4.7%
5.4%
0
2
4
6
8
10
2004 2005 2006 2007e 2008e
in E
UR
thou
sand
0%
1%
2%
3%
4%
5%
6%
GDP per capita Real GDP growth
Croatia – Economic growth set to reach 4 year high
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution18
Retail loan development
5.2 5.6 6.3 6.5 6.8
2.3 2.6 2.9 3.1 3.3
33% 30% 32% 33%33%
0
4
8
12
Jun 06 Sep 06 Dec 06 Mar 07 Jun 07
in E
UR
bill
ion
0%
10%
20%
30%
40%
Retail loans Private mortgages Retail loan growth (yoy)
Loan book trends
1.7 1.9 2.1 2.1 2.32.6 2.8 3.0 3.0 3.1
67%
42%30%
18%
61%
0
1
2
3
4
Jun 06 Sep 06 Dec 06 Mar 07 Jun 07
in E
UR
bill
ion
0%10%20%30%40%50%60%70%80%
Retail loans Corporate loans Retail loans
Customer loan development
1.3 1.5 1.8 2.0 2.12.8 3.0
3.6 3.84.247%
41%46% 48%
38%
0
1
2
3
4
5
Jun 06 Sep 06 Dec 06 Mar 07 Jun 07
in E
UR
bill
ion
0%10%20%30%40%50%60%
Retail loans Customer loans Retail loan growth (yoy)
Loan development
1.4 1.5 1.6 1.7 1.71.5 1.5 1.5 1.5 1.7
31%25%
27%24%26%
0
1
2
3
Jun 06 Sep 06 Dec 06 Mar 07 Jun 07
in E
UR
bill
ion
0%5%10%15%20%25%30%35%
Retail loans Corporate loans Retail loan growth (yoy)
Core region –Retail loans continue to be growth drivers
CS – Retail loans continuously grow above 30% (1) SLSP – Retail loan growth supported by > 40% increase inmortgages (1)
EB Hungary – Outgrowing the market in retail loans (1) EB Croatia – Strong growth despite tight regulatoryenvironment (1)
(1) Retail loan growth tredns based on LCY growth rates (excluding exchange rate movements)
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution19
BCR –Integration and development in a nutshell
Key goals of the Integration and Development Programme (IDP)− Further strengthen BCR position in the Romanian banking market− Contribute to increasing BCR’s profitability− Adopt Erste Group best practices and align processes to EG standards
IDP touches almost every aspect of the business− IDP comprises 42 projects supported by approx. 550 team members
− Various projects in retail and corporate banking, risk management, back-office and support functions, egmarketing, controlling, etc.
− BCR is making significant investments in the future:− Investments target strengthening of customer service and expansion of branch network,
the ATM and POS distribution and the implementation of a new call center
IDP transfers know-how and experience from Erste Group− Project teams include members from BCR and Erste Group, plus consultancy support− Senior managers from BCR and Erste Group sponsor each project− Approx. 100 people from Erste Group are involved in projects
Programme started in mid-2006 and is set to be completed by mid-2008
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution20
BCR Group headcount
Structural impacts of integration –Higher efficiency, lower headcount
BCR (bank only) headcount targets to 2008
Front-Office /Back-Office
& Support Ratio2.4 / 1.0 2.4 / 1.0
Key drivers of achievingthe headcount targets:
-Outsourcing
-Process reengineering
-Centralisation
Front-Office Back-Office + Support
Dec-06 Aug-07 Dec-07 Dec-08
1.4 / 1.01.0 / 1.0
Aiming to transform BCR intothe most efficient bank
in Erste Group
13,492
5,7756,4006,1355,514
2,4252,670
4,4575,5778,200
9,070
10,59211,091
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution21
− Net profit expected to grow above 40%(CAGR 2006-2009)
− Cost/income ratio expected to be about40% in 2009
− 2009 Return on equity to be above 35% -based on a 9% Tier 1 ratio
− Return on investment to exceed 10%(excluding funding costs)
BCR –Financial targets: Guidance remains unchanged
Cost/income ratio guidance
40.0%
55.3%
0%
20%
40%
60%
2006 2009e
Return on equity guidance
35.0%
20.0%
0%
20%
40%
2006 2009e
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution22
Ukraine –Erste Bank Ukraine in high growth phase
− Successful rebranding to Erste BankUkraine in May 2007
− Exceptional growth ahead− 10-fold increase in branch numbers− Fast rising employee base (now: 635)− Supported by ambitious investment programme:
about EUR 400m to 2010
− Market share to grow strongly− Retail lending market share already stands at
0.6%; up to 4% in selected regions; 1% in Kiev− Strong outperformance of market growth
expected in all segments in the coming years− Goal: 4% retail lending share in 2009
− Erste Bank Ukraine will make positivegroup contribution by 2010
Retail lending market share
0.6%
4.0%
0.0%0%
1%
2%
3%
4%
5%
Jun 06 Jun 07 Dec 09
Branch network development
100
400
35
10
100
1,000
Jun 07 Dec 07 (e) Dec 09 (e)
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution23
Presentation topics
−Continued strategic consistency
−Setting the scene for future growth
−Summing up the region
−Outlook and targets
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution24
Outlook –Erste Group financial targets confirmed
−Guidance 2007 unchanged− Net profit growth of at least 25%− Cost growth of about 25% over 2006
−Guidance 2008: 7% cost growth – full update for 2008 at Q3 results
−Mid-term group targets reconfirmed
Net profit(1) growth
Return on equity(2)
More than 20% p.a. average until 2009
Below 55% in 2009Cost/income ratio
18-20% in 2009
(1) Net profit after minorities(2) Based on a Tier 1 ratio of at least 7%
ERSTE GROUP
ML Banking and Insurance CEO Conference2-4 October 2007
Strategic consistency andsuccessful execution25
Investor relations contacts
−Erste Bank, Graben 21, 1010 Vienna
− Fax +43 (0)5 0100-13112− E-mail: [email protected]− Internet: www.erstebank.com− Reuters: ERST.VI Bloomberg: EBS AV− Datastream: O:ERS ISIN: AT0000652011
− Gabriele WerzerTel: +43 (0)5 0100-11286 E-Mail: [email protected]− Thomas Sommerauer
Tel: 43 (0)5 0100-17326 E-Mail: [email protected]
Investor relations