November 27, 2009

February 28, 2011 This is bne's Russia banking weekly newsletter, a list of the top stories in region last week. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options here: http://businessneweurope.eu/users/subs.php

TOP STORY BANKER 1. Corporate lending rates hit new record low in January 2. HSBC joins the crowd in departures 3. Sberbank considering taking stakes in Volksbanken, Troika 4. VTB takes key BoM board positions; begins talks with minorities; buys additional 3.88% stake, giving it a majority 5. VTB buys city's Bank of Moscow stake despite ongoing power struggle with management NEWS BANKER 6. Russian financials - tricky pickings 7. Russia’s VEB to up loans to non-financial sector 30% in 2011 8. Sberbank's minority shareholders would like to have a representative on the Supervisory Board BANK M&A 9. Bank of Georgia divests 80% BG Bank stake 10. VTB: Struggle for Bank of Moscow Continues 11. Five VTB executives elected to Bank of Moscow BoD as power struggle continues FOREIGN BANKS IN RUSSIA 12. Russia's Raiffeisenbank sees RAS assets up 15-25% in 2011 REFORM, SECTOR, MACRO BANKER 13. Russian Economic Development Ministry wants to cut business taxes, hike consumption taxes 14. Kudrin says Russia can still keep inflation below 7% in 2011 15. Russia's budget deficit may be below 3% of GDP in 2011 16. Russia's tax service says arrears down 7% in 2010 KAZAKH BANKS 17. Azerbaijan-based banks ranking for assets 18. Azerbaijan-based banks ranking for deposit portfolio 19. Azerbaijan-based banks ranking for loan portfolio 20. Azerbaijan-based banks ranking for overdue credits 21. Bank lending shrinks while Kazakh economy grows - Moody’s 22. Banking sector: deposits rise, while loans shrink in January 23. BTA BANK PUBLISHES UNAUDITED 2010 IFRS RESULTS 24. BTA completes securities listing under restructuring plan 25. India’s PNB to expand in Kazakhstan 26. JANUARY KAZAKH BANKING LOAN GROWTH AND ASSET QUALITY 27. Kazakh banks in January: Loans lost 0.3% MoM, deposits expanded 1.6% 28. Kazakh banks open the New Year with rising NPLs 29. Kazakh banks’ asset quality in January: Spike in total overdues – just seasonal? 30. Kazakhstan could be PNB’s springboard for further CIS expansion 31. KAZKOMMERTSBANK - HEATED BY STATE INITIATIVES

UKRAINIAN BANKS 32. Alfa Bank Ukraine plans capital increase; proves shareholder support; upside potential remains in ALFAUA 12 33. Bank Forum focuses on cleaning up balance sheet 34. Financial Cards and Payments in Ukraine 35. Gov't to use Oschadbank to recapitalize Nadra Bank 36. Raising Capital Requirements Is Credit Positive for Ukrainian Banks 37. Tymoshenko to appeal to court against transfer of Hr 3.5 billion from Oschadbank to 38. Ukraine's banks improve operations in January EURASIA BANKS 39. Azerbaijan: Bank Respublika extends customer base by 55% 40. Azerbaijan: Mugan Bank increases authorized capital 41. Azerbaijan: Mugan Bank increases profit by 5 times 42. Azerbaijan: Pasha Bank makes public outcomes of 2010 43. Azerbaijan: Pasha Bank to open representation in Switzerland 44. Azerbaijan: VTB Azerbaijan gets decrease in financial indexations 45. Azerbaijan-based banks ranking for income 46. Azerbaijan-based banks ranking for profit 47. Azerbaijan-based banks ranking for total capital 48. Georgia: Bank of Georgia sells an 80% stake in BG Bank for US$9.6m 49. Mongolia: Banks attract more savings, issues more loans SE BANKS 50. Bulgarian Corporate Commercial Bank net profit BGN 74 million in 2010 51. Moody's withdraws ratings of Bulgarian MKB Unionbank 52. Romania's Bucharest Stock Exchange and SIBEX shareholders to decide on merger on April 29 53. Romanian Banca Transilvania's CEO makes comments to the media 54. Romanian SIFs - BCR has an upbeat 2011 budget according to local media 55. The "good" banker 56. The planned listing of Romanian BCR bank not going smoothly 57. Turkey's Akbank had a strong operating performance in 4Q10 CE BANKS 58. FHB changes gear after acquiring Allianz's Hungarian unit 59. Hungary bank levy eats up profits in 2010, PSZAF data show 60. Hungary bank's loan quality deterioration seem to have stopped last year 61. Nordea sees Latvia's lending market to have more new in 2011 62. Poland bank BRE insists it remains strategic asset for Commerzbank

TOP STORY BANKER 1. Corporate lending rates hit new record low in January VTB Capital February 24, 2011 News: The CBR has reported its January statistics for interest rates for loans and deposits of up to one year (excluding Sberbank). The key highlights are as follows. * Corporate lending rates dropped to a new historical low of 8.6%. * Retail term deposit rates and retail customer accounts rates stayed broadly flat MoM. The spread between corporate lending rates and retail customer accounts rates returned to an historical low of 3.1%, from 3.7% in December. Our View: The further decline in lending rates comes as a moderately negative surprise on the back of increasing competition (particularly from state banks) and

ongoing efforts to stimulate demand. At the same time, a number of companies keep refinancing the debt attracted just six months ago on the back of expectations that rates could head north in 2Q11 amid rising inflation. At the same time, we believe that rates have reached the bottom, with a number of banks (including Sberbank) starting to renegotiate rates up. We expect to see evidence of margins stabilising in the 4Q10 results, with a moderate uplift in 1H11 and then remaining flat thereafter (although still below pre-crisis levels). Sberbank remains our preferred way to play out the potential NIM rebound. We are reiterating our Buy recommendation and see the launch of the DR programme and further information about privatisation as catalysts for the stock. 2. HSBC joins the crowd in departures bne February 22, 2011 The exodus of foreign banks looks set to continue to accelerate, with reports that HSBC is about to wrap up its Russian retail operations just two years after announcing ambitious growth plans, reports Kommersant. A spokeswoman denied knowledge of any plans by HSBC to shut its retailing business in Russia to EmergingMarkets.me. However, sources indicate that the British bank has lost its appetite for the niche high-end retail sector. The reports come close on the heels of the exit of two other banks, and add to a growing crowd of departures by international players. Barclays said last week it is to sell its retail business in Russia, and that it intends to focus solely on investment banking, whilst the Dutch Rabobank gave up its Russian retail licence. Spain's Santander started the ball rolling in December when it sold its Russian business to Orient Express. Meanwhile the state-controlled giants - and VTB in particular - are leading activity in a partial consolidation of Russian banking through M&A. It was only June 2009 when HSBC Russia a "world-class retail offering", opening four branches in Moscow and one in St Petersburg as the starting point in an ambitious $200m roll out. However, just a year later, CEO Stuart Lawson left the company abruptly, amid rumours that the bank was downsizing in Russia. 3. Sberbank considering taking stakes in Volksbanken, Troika Alfa Bank February 25, 2011 Sberbank is scheduled to hold a Supervisory Board meeting to consider several issues, including its potential purchase of a domestic investment banking business and various international businesses. We believe that negotiations to purchase Russian investment bank, Troika Dialog, have already been completed, but board approval is needed before the deal can be finalized. Vedomosti has reported that Sberbank would initially buy 80% of Troika Dialog shares - 43.6% from the company's sernior- management and the other 36.4% from South African Standard Bank for $1bn, which would value the company

at $1.25bn with a P/B multiple of 1.5. Later, Sberbank could acquire the remaining 20% of shares from Troika's employees for an amount subject to Troika's financial performance. In other news, Der Standard reported yesterday that Sberbank may be interested in buying a 25% stake in Oesterreichische Volksbanken AG from DZ Bank AG, citing an unidentified person familiar with the talks. The newspaper says that Sberbank is now reviewing the books of Volksbanken's Eastern European unit, which is up for sale. Jason Hurwitz 4. VTB takes key BoM board positions; begins talks with minorities; buys additional 3.88% stake, giving it a majority Alfa Bank February 25, 2011 The BoD of Bank of Moscow (BoM) yesterday elected VTB CEO Andrey Kostin as BoM's BoD Chairman and VTB's First Deputy CEO Mikhail Kuzovlev as First Vice President of BoM. A newswire reported that a VTB spokesman said that VTB had started consultations and negotiations with other BoM shareholders. One of the international shareholders had reportedly sold its 3.88% stake to VTB, which would provide VTB with an outright majority stake, in combination with the 46.48% already directly held. According to Russian law, VTB has 35 days from Wednesday's purchase of a stake of more than 30% to make a mandatory tender offer to all shareholders. The price of that offer must be at least as high as the price paid for the initial 46.48% purchased from an entity owned by the Moscow city government. That mandatory offer effectively puts a floor on the price that VTB must pay to gain any additional stake. Vedomosti reported that VTB paid RUB97.8bn for the direct 46.48% stake in BoM, which equates to RUB1,109.2 per BoM share and a 3Q10 P/B of 1.7x. While VTB thus faces pressure to complete negotiations within 35 days, we note that the sellers might also have pressure. Without an agreement, they would have to choose whether or not to accept the tender. If they do not accept it, they might risk being minorities without a visible exit strategy. We believe that it is increasingly likely that VTB will be able to obtain a stake of at least 75% +1 share, which would provide additional control to VTB. The biggest challenge to such a transaction may come from purchasing the shares held by current senior management. BoM President Andrei Borodin, who owns a 20.36% stake in BoM together with Deputy Chairman Lev Alaluev, suggested that he believed BoM to be worth RUB240-280bn, or approximately 20-40% more than the price VTB appears to have paid in this latest acquisition. Jason Hurwitz 5. VTB buys city's Bank of Moscow stake despite ongoing power struggle with management Alfa Bank

February 24, 2011 VTB purchased 46.48% of Bank of Moscow (BoM) and 25%+1 share of Capital Insurance Group (SSG), which itself owns 17.32% of BoM, from a company owned by the Moscow city government, paying RUB103bn for the stake. VTB purchased the shares relatively cheaply, in our view. It is possible that VTB has also picked up assets and liabilities controlled by SSG other than BoM. For the purpose of simple valuation, however, if we assume that SSG holds only BoM and has no liabilities, then VTB's payment of RUB103bn for 51% of BoM implies a historical P/B of 1.73x, based on BoM's reported RUB117bn book value. If we assume a 15% annualized ROE for BoM from 3Q10 to YE11, the 2011 P/B ratio would be 1.45x, which is less than VTB's 1.57x 2011E P/B. It is not clear that VTB as yet has control over BoM. While the combined stakes would appear to total 50.8% of BoM, VTB does not have control over SSG's shares in BoM. VTB has expressed a desire to purchase 100% of BoM, which it must do via a mandatory tender offer following the acquisition of more than 30% of the company. We believe VTB is likely to gain control of BoM in the near term, either by purchasing more shares in SSG from one of its two other shareholders, or by acquiring a stake in BoM directly from one of the minority shareholders, which include international banking institutions. VTB may face difficulties, however, in purchasing the shares held by current senior management. BoM President Andrei Borodin, who owns a 20.36% stake in BoM together with Deputy Chairman Lev Alaluev, suggested that he believed BoM to be worth RUB240-280bn, or approximately 20-40% higher than the price VTB appears to have paid in this latest acquisition. While five VTB executives were elected to BoM's 15-member BoD, the current management reportedly controls eight board seats, including that of newly elected BoD president Dmitry Akulinin. VTB has reportedly voiced its opposition to his election, claiming that its new board members had not been duly informed of the EGM at which he was elected. For more information about our view on this potential transaction, please read our February 14 report, "Big Banks Set to Rebound after VTB SPO". Jason Hurwitz

NEWS BANKER 6. Russian financials - tricky pickings Troika Dialog February 21, 2011 Troika's recent Russia Forum provided a welcome opportunity to take the collective pulse of Russian banks. Most view 2011 with understated optimism, which, after the rigors of the past two years, is welcome, but expected. Loan growth has been gaining momentum (at an annualized rate of 19% since April 2010) and banks see retail lending as a key driver this year as the population shifts emphasis from saving to borrowing. Earnings uplift of 66% for our covered banks will be supported by margin stabilization, lower cost of risk and a more promising fee income outlook.

Some of this benign outlook is priced in. Russian banks trade at a 2011E P/BV of 1.9, a 10-20% premium to GEM, but on higher ROAE, and a slight discount on 2011E P/E of 10.3. Value is still to be found, but selectively. - Our top picks. Sberbank (TP: $4.59, BUY) remains the standout name on fundamentals and valuation. It should average 24.5% ROAE in 2011-12, which is pretty much unmatched among global banks. Bank of St Petersburg (TP: $7.11, BUY) is our other top pick, even after such a strong 2010, as it builds on its improving 2H10 profitability. For VTB (TP: $7.66, HOLD), after the ultimately successful SPO, now comes the nitty-gritty of its M&A plans. On a bullish 2013 outlook incorporating full control of Bank of Moscow, it can trade on similar multiples to Sberbank, but the risks and pitfalls in getting there are still much higher, in our view. We downgrade Vozrozhdenie Bank (TP: $52.25, HOLD) on a more gradual earnings recovery this year. We see little further value in the year's two best performers, Bank of Moscow (TP: $40.51, HOLD) and MDM Bank (TP: $0.63, HOLD). - Privatization pipeline. One down, two to go. With VTB done, the focus will shift to Sberbank's possible $6 bln sale in 2H11 and consequent DR launch. Expectation management will be key to easing overhang concerns. We also expect the management to be out selling the story, which is made easier by highly impressive fundamentals. We expect VTB to ultimately acquire Bank of Moscow, but do not rule out energy-sapping legal and technical issues along the way in the coming months. - A changing landscape. There is gradual change afoot in Russia's banking sector structure. There are 100 fewer banks than in the pre-crisis period, while penetration is back to pre-crisis levels (39% loans/GDP) and lags many GEM peers. Foreign ownership is recovering, but several foreign banks are scaling down or exiting the market. Meanwhile, the top five state banks have strengthened their position and hold over half of all sector assets. Our analysis of retail segments such as mortgages, cards and remote banking show some traction, but still massive untapped growth potential. - Mind the risks. The main downside risk lies in disinflation in 2H11 threatening margins again, and still slightly patchy corporate loan growth. At current valuations, we would focus on the banks that have the profitability to back up their multiples, which, in our view, are Sberbank and Bank of St Petersburg. Andrew Keeley 7. Russia’s VEB to up loans to non-financial sector 30% in 2011 bne February 21, 2011 Russia’s state-owned Vnesheconombank (VEB) plans to increase its loan portfolio to the non-financial sector by 30% this year to 454.1 billion rubles, the Russian government’s press service said in a statement published, Prime-Tass reports. 8. Sberbank's minority shareholders would like to have a representative on the Supervisory Board VTB Capital February 24, 2011 News: According to RBC-Daily, Sberbank's minority shareholders would like to have a representative on the bank's Supervisory Board, in addition to the special committee that Sberbank already has to coordinate its cooperation with minorities. In order to nominate candidates to the board, shareholders need to accumulate no

less than 2% of shares. Sberbank currently has three independent directors on its board. Our View: Sberbank already works closely with minorities via a special committee, although a minority presence on the Supervisory Board would expand such cooperation. We do not expect this to have a material effect on Sberbank's operations although it might increase transparency and highlight improving corporate governance. Dmitry Dmitriev

BANK M&A 9. Bank of Georgia divests 80% BG Bank stake BG Capital February 21, 2011 Bank of Georgia (BGEO LI) announced the sale of an 80% stake in its Ukrainian subsidiary BG Bank to an unnamed group of Ukrainian investors for US$ 9.6mn including transaction fees. The deal was completed at 0.82x BG Bank's end-January book value. Bank of Georgia retains a 19.4% interest in BG Bank. Bank of Georgia's CEO noted that the sale alleviates the need for additional investments into the loss-making subsidiary. The deal will have a negative impact on the bank's 2011 consolidated income statement of GEL 13.5mn (US$ 7.7mn) but a positive impact of GEL 16.4mn (US$ 9.4mn) on total equity. 10. VTB: Struggle for Bank of Moscow Continues Aton February 21, 2011 Bank of Moscow's Extraordinary General Meeting scheduled for 4 Mar - with election of the bank's president on its agenda - was cancelled on 17 Feb by the board of directors, both Vedomosti and Kommersant reported today (21 Feb). The cancellation was linked to a breach in the process of informing shareholders. Two candidates were on the election list: current president Andrei Borodin and First Deputy Chairman of VTB Mikhail Kuzovlev. The general meeting has now been re-scheduled for 3 May and the list of candidates has been changed: Borodin remains, but the second candidate is now his deputy Dmitri Akulinin. The reason why Kuzovlev has been removed is not known. Bottom line The obstacles continually blocking VTB's attempt to acquire Bank of Moscow are negative for VTB, as delays may result in an increased price and even raise doubts about the deal being concluded in a reasonable time. 11. Five VTB executives elected to Bank of Moscow BoD as power struggle continues Alfa Bank February 22, 2011

Five VTB executives were elected to the Bank of Moscow's (BoM) 15-member BoD at the bank's EGM, according to newswire reports. The new board members include VTB CEO Andrei Kostin and First Deputy CEO Mikhail Kuzovlev. BoM senior management had reportedly attempted to block the decision to elect the VTB officials, suggesting a struggle for control of BoM, which now appears to be moving towards VTB. The BoD, however, cancelled a meeting scheduled for March 4 intended to elect Mr. Kuzovlev as President of BoM. Instead, the BoD reappointed President Andrey Borodin, Deputy Chairman of the BoD Lev Alaluev, and First Executive Vice President Dmitry Akulinin as BoM BoD members. Mr. Akulinin was elected BoD president. VTB reportedly considers these latest BoD decisions (including Mr. Akulinin's appointment) to be illegitimate, since VTB was not duly informed about the meeting. Moreover, newswire reports suggest that state-owned VEB was also disappointed with the BoD elections because its representatives had failed to be elected. As previously reported, VTB has been targeting BoM for acquisition. While there have been reports that BoM would likely be sold via auction in line with Russian regulations, the sides have reportedly found an alternative mechanism that would effectively allow a direct sale to VTB. While Alfa Bank has publicly expressed interest in the asset, our belief that VTB is the probable buyer of BoM has now been supported by this reported decision to appoint VTB executives to the board. Mr. Borodin, who owns a 20.36% stake in BoM together with Deputy Chairman Lev Alaluev, commented yesterday that he believed BoM was worth RUB240-280bn, which is ~20-40% higher than city officials had estimated earlier this year. As the estimate would put the price at more than two times BoM's reported book value, which was RUB117bn as of 9M10, we believe such a valuation might be difficult to obtain for the sellers, particularly after the most probable buyers have already increased control of BoM. For more information about our view on this potential transaction, please read our February 14 report, "Big Banks Set to Rebound after VTB SPO". Jason Hurwitz

FOREIGN BANKS IN RUSSIA 12. Russia's Raiffeisenbank sees RAS assets up 15-25% in 2011 bne February 21, 2011 Russia's Raiffeisenbank expects its assets to increase at least 15%-25% this year, as calculated under Russian Accounting Standards (RAS), says Andrei Stepanenko, a bank board member and head of the consumer banking directorate, Prime-Tass reports. In 2010, Raiffeisenbank increased its RAS assets by 4%-5% on the year, Stepanenko added, the agency reports. He also said the bank would open 5-15 branches in Russia's regions as well as in Moscow in 2011.

REFORM, SECTOR, MACRO BANKER 13. Russian Economic Development Ministry wants to cut business taxes, hike consumption taxes bne February 22, 2011 Russia's Economic Development Ministry has proposed decreasing taxes for business activity and increasing taxes for consumption and real estate property in the medium and long terms in order to boost economic development, Minister Elvira Nabiullina says, Prime-Tass reports. A day earlier, Deputy Prime Minister and Finance Minister Alexei Kudrin said the Finance Ministry did not foresee any possibilities to increase the tax burden in Russia, Prime-Tass reports. Kudrin added that there was, however, no scope to decrease the volume of corporate payments into non-budget state funds. Nabiullina was also quoted as saying it would be unreasonable to introduce a progressive scale for income tax, Prime-Tass reports. The current use of a flat scale has been shown to be effective, she says. 14. Kudrin says Russia can still keep inflation below 7% in 2011 bne February 24, 2011 Consumer price inflation in Russia may still end up lower than the official target of 7% in 2011, but the government must do more to fight inflation, Deputy Prime Minister and Finance Minister Alexei Kudrin says, Prime-Tass reports. "We have not abandoned our goals yet. However, it will be very difficult to reach this goal - to keep inflation within 7%," Kudrin was quoted as saying. He added that there was also a danger of "losing a grip on monetary factors of inflation." Food prices have soared but Kudrin told the BBC that he was counting on "the fact that food prices will stabilize after the harvest in the second half of the year." 15. Russia's budget deficit may be below 3% of GDP in 2011 bne February 21, 2011 Russia's federal budget deficit could amount to less than 3% of the country's gross domestic product (GDP) in 2011, lower than the planned 3.6%, Deputy Economic Development Minister Andrei Klepach says, Prime-Tass reports. 16. Russia's tax service says arrears down 7% in 2010 bne February 21, 2011 Total tax arrears to Russia's budget decreased 7% in 2010 to around 1.3 trillion rubles as of January 1, according to Federal Tax Service data, Prime-Tass reports.

KAZAKH BANKS 17. Azerbaijan-based banks ranking for assets APA-Economics February 24, 2011 APA-Economics regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance. The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by assets in accordance with the available data as of January 1. 2011. (mln. AZN) * These banks did not release indexes.

18. Azerbaijan-based banks ranking for deposit portfolio APA-Economics February 24, 2011 APA-Economics regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance.

The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by deposit portfolio in accordance with the available data as of January 1. 2011. (mln. AZN) * These banks did not release indexes.

19. Azerbaijan-based banks ranking for loan portfolio

APA-Economics February 24, 2011 APA-Economics regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance. The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by loan portfolio in accordance with the available data as of January 1. 2011. (mln. AZN) * These banks did not release indexes.

20. Azerbaijan-based banks ranking for overdue credits APA-Economics

February 24, 2011 APA-Economics regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance. The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by overdue credits in accordance with the available data as of January 1. 2011. (mln. AZN) * These banks did not release indexes.

21. Bank lending shrinks while Kazakh economy grows - Moody’s bne February 22, 2011 Kazakhstan saw a notable decline in bank credit in 2010, while the economy grew strongly, a report from rating agency Moody’s says. Real GDP growth in Kazakhstan reached 7% in 2010, and nominal growth was 26.5%, mainly on the back of higher oil prices. However, bank lending shrank 5.9% during the year, according to official statistics. Admittedly, much of the decline in total bank loans was due to the 35% decrease in BTA Bank’s portfolio, but it is also a factor of weak demand for loans, says Moody’s report 'Amid GDP Growth, Kazakh Banks’ Lending Shrinks, a Credit Negative' an extract from Moody’s Weekly Credit Outlook. Demand from small and medium enterprises has been weak, while larger enterprises in the natural resources sectors typically borrow from international markets. Banks’ lending is also being constrained by the lack of long-term funding as access to international credit markets has largely dried up for many Kazakh banks. “The loan contraction is credit negative for Kazakh banks, as increased revenues from oil exports have not led to a material rebound in household consumption and private investments that drive loan demand,” say the report’s authors, Moody’s analysts Armen Dallakyan and Semyon Isakov. They warn that weak demand for loans in Kazakhstan “will constrain banks’ earnings, capitalisation, and franchise strength”. Moody’s forecasts that there will not be a quick recovery in demand for bank credit in Kazakhstan. “We believe that over the next 12-18 months lending growth will remain weak and increase competition among banks for high-quality borrowers,” say Dallakyan and Isakov. “Banks that have relatively low costs of funding and access to longer term resources, such as Halyk Bank and SB Sberbank, should perform better in such a market.”

22. Banking sector: deposits rise, while loans shrink in January Visor Capital February 23, 2011 Sector loans declined 0.3%, while deposits went up by 1.6% in January. The sector posted an overall net loss of US$22m during the month. We expect a negative bond and share price impact for BTA Bank and Alliance Bank, both of which recorded net losses in January. However, we expect a positive bond and share price impact for Halyk Bank as it posted healthy earnings during the month. On Tuesday, the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (AFN) released financial information on the banking sector for January 2011. The data (see table below) is based on unconsolidated regulatory data, calculated according to Kazakh accounting standards. The sector posted an overall net loss of US$22m in January. The main driver of the sector loss was BTA Bank (BTAS KZ), which recorded a US$38m net loss during the month. Alliance Bank (ASBN KZ)(ASBNp1 KZ)(ASBN LZ) for the third month in a row posted a net loss amounting to US$12m in January. Halyk Bank (HSBK KZ)(HSBKp KZ)(HSBKp1 KZ)(HSBK LI) showed the highest net earnings of US$16m in January. Sector loans declined 0.3% while total deposits went up by 1.6% MoM. Loan portfolios of all major banks except Bank CenterCredit (CCBN KZ) and Kaspi Bank (CSBN KZ)(CSBNp KZ) declined in January. Temirbank’s (TEBN KZ)(TEBNp KZ)(T3M GR) loan book continued to decrease, going down by 1.3% MoM. Kazkommertsbank (KKGB KZ)(KKGBp KZ)(KKB LI) total loans contracted by 1.0% and deposits declined by 4.8% during the month. Kazkommertsbank deposits mainly went down due to corporate deposits outflow in January. Halyk Bank and BTA Bank deposits grew by 6.1% and 3.9% MoM, respectively. Increased total deposits of Halyk Bank and BTA Bank mostly came from the corporate side which we believe could have come from state-related entities. We expect a negative bond and share price impact for BTA Bank and Alliance Bank, both of which recorded net losses in January. However, we expect a positive bond

and share price impact for Halyk Bank as it posted healthy earnings during the month. We have all the above banks under formal research coverage, available to our clients.

23. BTA BANK PUBLISHES UNAUDITED 2010 IFRS RESULTS Troika Dialog February 22, 2011 BTA Bank on Friday released unaudited consolidated results for 2010. This is the second set of post-restructuring results and similar to those for 9m10, as they are preliminary and may differ from the final version (which will be released by end March). Key takeaways are as follows. > Earnings. The bank booked a loss of KZT16 bln ($111 mln) in 4Q10 after one quarter of earnings in 3Q10, when strong income from restructuring and the release of provisions helped it push equity into positive territory. For the ful l year, the bank earned income of KZT1.1 trln ($7.5 bln), mainly due to $6.6 bln in restructuring income, while NII was small ($72 mln, only 0.6% NIM), fee income ($70 mln) declined 47% y-o-y and costs increased 27% y-o-y. > Equity. The bank's equity of $131 mln declined during 4Q10 from the post-restructuring $175 mln due to the loss incurred in 4Q10. Under local standards, the bank quickly increased its equity due to fast releases of provisions on its Kazakh loan portfolio ($3.8 bln in releases in 2H10 and equity of $1.2 bln by end 2010), while the consolidated results were weighted down by provisions on bad loans outside of Kazakhstan, including $6 bln in bad loans in Russia. Recovery of equity under IFRS will likely be a protracted process, factored by recoveries from the $12 bln provisioning pool. > Provisions. After a net release of provisions in 3Q10, the bank posted a $305 mln provision charge for 4Q10, with a cost of risk of 6.5%. For the full year, LL P release stood at 3.0%, and we estimate provisions/gross loans at 66% (gross loans will be published in the full audited set of IFRS figures), virtually flat y-o-y. > Balance sheet. The bank reduced its assets and net loans by 4% and 11% in 2010 (4% and 4% in 4Q10), respectively. Post-restructuring, the bank had $4.8 bln in wholesale debt (major redemptions start from 2015), a loan/deposit ratio of 136% and $3.0 bln in debt to the National Bank, the repayment of which will be top priority. Retail deposits are the major domestic funding source for the bank (up 43% y-o-y and 18% Q-o-Q), in addition to funds from Samruk-Kazyna.

> Overall. The results show BTA Bank's uneasy restoration of its business post-restructuring. Core earnings are still very weak and the management will have to focus inward on restructuring before starting to implement a new strategy. On the bright side, robust retail deposit inflows provide evidence of strong recognition among the public, which will clearly be helpful in the bank's revival. 24. BTA completes securities listing under restructuring plan bne February 25, 2011 BTA Bank has completed the listing of GDRs and new notes issued in its debt restructuring. The bank said in a statement that tenge-denominated new notes had been listed on the Kazakhstan Stock Exchange (KASE), effective from December 27, 2010. GDRs and non-tenge new notes were listed on the official list of the Luxembourg Stock Exchange on February 22, 2011, and admitted to trading on the Euro MTF Market of the Luxembourg Stock Exchange as of February 23. 25. India’s PNB to expand in Kazakhstan bne February 24, 2011 Punjab National Bank (PNB), India’s largest state-owned bank, plans to expand in Kazakhstan after buying a majority stake in Almaty-based Dana Bank. PBN paid around $23.7m for the 63.64% holding in Dana in December 2010. Dana is one of Kazakhstan’s smaller banks, with a business worth around $60m. It currently has five branches, of which three - in Almaty, Pavlador and Karaganda - are operational. Two others, in the Kazakh capital Astana and the southern city of Taraz, will start working in the near future. Two new branches in oil-rich west Kazakhstan will be opened later. Dana will be re-branded as PNB as soon as formal approval from Kazakhstan’s financial regulator, the AFN, is given, and further investments are planned. “We have three priorities for Dana Bank: better customer service, more competitive pricing - both for interest rates and other charges, and introduction of the best technology,” Bhushan Bhatia, chief representative of PNB in Kazakhstan, told bne. The amount the PNB will invest in Dana has not yet been decided as development plans for the bank are still being decided. PNB has had a representative office in Kazakhstan since 1998, and carried out a study of the banking sector before deciding to invest in Dana. “In our view, the Kazakhstan economy is growing and improving day by day. The banking sector is out of the crisis, and is now more stable than previously,” Bhatia says. 26. JANUARY KAZAKH BANKING LOAN GROWTH AND ASSET QUALITY Troika February 24, 2011

The Kazakh banking regulator has published data on loan growth and asset quality for 1m11. > Loan growth. After a seasonally strong December, sector loans shrank 0.3% m-o-m, with the largest banks - Kazkommertsbank (down 1.0%) and Halyk Bank (down 0.8%) - again seeing the biggest contraction. Although January is traditionally weak, this year was slightly worse than last ("good" banks' loans down 0.2% m-o-m), but better than January 2009 (down 0.8%). > Asset quality. The cost of risk is gradually decreasing for "good" banks (2.4% in January versus 4.4% in 2010) due to a slowdown in NPL ratio growth (up 22 bps to 21.3% in January versus an average of 44 bps per month in 2010). The "bad" banks seem to have squeezed out the recovery of their bad assets as much as they can at this stage (mostly with regard to domestic portfolios), as their write-offs have slowed over the last couple of months. Despite the portfolio shrinkage, NPLs of "good" banks continued rising in absolute terms (up $70 mln in January), albeit at a much slower pace than in 2010 ($200 mln per month), which is likely due to accelerated asset collection procedures (in order to increase favorable rulings, banks have to stop rolling over bad loans and create additional provisions). The trend is understandable - after three years of continued restructuring and with an improving macroeconomic scene, the majority of bad loans have crystallized and banks are now more experienced to make better forecasts for their borrowers. During our recent trip in early February, most banks said that NPLs had bottomed or are close to doing so. We think that sector recovery will depend largely on the success of state initiatives to support business and develop an effective distressed assets mechanism. Should the latter bear fruit, we may see contraction in the bad part of banks' loans to absorb the growth in the good part (varying among banks, certainly) - painful, but both needed, in our view. 27. Kazakh banks in January: Loans lost 0.3% MoM, deposits expanded 1.6% Renaissance Capital February 25, 2011 Event: On Tuesday (22 February), AFN (Kazakhstan's banking regulator) published January sector data. Sector assets increased 0.6% MoM, driven by continued deposit growth (+1.6% MoM), while loans saw a decline (-0.3% MoM). Loans shrank in most of the top 10 banks with the exception being Eurasian Bank (+4.1% MoM) and Kaspi (+0.6% MoM), while Center Credit remained almost flat (+0.1% MoM). All three banks increased lending during 2010 – CenterCredit by 7.6%, Kaspi by 14.9% and Eurasian by 20.7%. MoM lending decreased the most at KKB (-1%; $71mn), Halyk (-0.8%; $22mn), Nurbank (-1.4%; $13mn) and Temirbank (-1.3%; $11mn). Deposits continued to build up, with Halyk and BTA recording the highest growth of 6.1% MoM ($627mn) and 3.9% MoM ($202mn), respectively. However most of the top 10 banks saw MoM decreases in deposits. Among the banks that experienced lower deposits were KKB (-4.8% MoM; $418mn), Center Credit (-2.4% MoM; $99mn) and Alliance (-3.3% MoM; $40mn). Corporate deposits for the sector added 2.1% MoM ($810mn) in January. Most of the sector growth is attributable to Halyk and BTA, which saw a significant inflow of $599mn (+9.2% MoM) and $159mn (+5.1% MoM), respectively. Three banks saw sizable corporate deposit outflows: KKB (-7.5% MoM; $478mn), Center Credit (-4% MoM; $101mn) and Alliance (-5.5% MoM; $45mn).

Action: Neutral for KKB and Halyk, positive for Center Credit, in our view. Rationale: There were no big shifts within the sector and no significant deviation from the long-term deleveraging trend, in our view. The lending data show a continued decline, although the low lending activity in January can be partly attributed to the seasonal effect and holidays. During 2011, we expect to see lending growth of 5-7%, although the National Bank of Kazakhstan projects that new lending within 2011 will be offset by write-offs and repayments. Kazakh banking: Key statistics for January (regulatory reporting) 28. Kazakh banks open the New Year with rising NPLs Visor Capital February 22, 2011 Sector loan quality performance showed overall deterioration across all regulatory measures in January. We expect a negative bond and share price impact for ATF Bank and Kazkommertsbank, as both banks showed significant asset quality deterioration during the month. We expect, however, a positive bond and share price impact for Halyk Bank, which showed a notable decline of NPLs during the month. The Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organisations (AFN) yesterday published monthly asset quality data for the banking sector for January 2011. The data (see table below) is based on unconsolidated regulatory data, calculated according to Kazakh accounting standards. The sector showed overall loan quality deterioration in January. The sector non-performing loans (NPLs) as defined by AFN went up 0.5% in January. The overdue amount and principal amount 90-days overdue increased 5.9% and 3.6% during the month, respectively. ATF Bank (ATFB KZ)(ATFBp KZ)(ATFBp8 KZ) showed significant loan quality deterioration across all measures in January, with NPLs in particular surging by 24.9%. Overdue amounts were up by 5.0% and principal amount 90-days overdue grew by 4.9%. Kazkommertsbank (KKGB KZ)(KKGBp KZ)(KKB LI) principal amount 90-days overdue and overdue amounts rose by 17.9% and 11.1% in a month, respectively, a record-high increase among major banks. However, NPLs of KKB went down 1.0% MoM. Bank CenterCredit (CCBN KZ) loan quality performance was mixed: 90-days overdue increased 9.1% MoM while NPLs and overdue amounts declined marginally. Halyk Bank (HSBK KZ) (HSBKp KZ) (HSBKp1 KZ) (HSBK LI) showed improvements as NPLs and 90-days overdue decreased by 4.6% and 0.3% in January, respectively. Sector loan-loss provisions increased by 0.5% MoM, bringing the total provisioning level to 31.2% of the total loan portfolio. Halyk Bank, Kaspi Bank (CSBN KZ)(CSBNp KZ) and Temirbank (TEBN KZ)(TEBNp KZ)(T3M GR) increased provisions by 1.5%, 3.7% and 2.8%, respectively. BTA Bank (BTAS KZ) and Bank CenterCredit released provisions only slightly in January. NPLs and 90-days overdue coverage ratio ATF Bank has the lowest ratio of 77% and 46%, respectively, which may suggest a potential further recognition of provisions. We expect a negative bond and share price impact for ATF Bank and Kazkommertsbank, as both banks showed significant asset quality deterioration

during the month. However, we expect a positive bond and share price impact for Halyk Bank, which showed a notable decline of NPLs during the month. We have all of the above banks under formal research coverage, available to our clients.

29. Kazakh banks’ asset quality in January: Spike in total overdues – just seasonal? Renaissance Capital February 23, 2011 Event: In January, overdue loans in Kazakhstan's banking sector showed a marked spike, while the NPL proxy held steady, according to data released by banking regulator AFN yesterday (21 February). Total overdue loans (ex. BTA and Alliance) increased 528 bpts to 28.7% (34.6% for the total system), affecting all of the top-10 banks, most notably Nurbank (+1,033 bpts), KKB (+866 bpts), Halyk (+575 bpts) and Bank CenterCredit (+523 bpts). Loans overdue by 90+ days (ex. BTA and Alliance) increased 156 bpts, rising 368 bpts to 23% at KKB and 174 bpts to 32.9% at ATF, but decreasing 152 bpts to 35% at BTA. The NPL proxy was roughly flat (+19 bpts only). The most notable deterioration was reported by ATF (+404 bpts to 19.8%), while the reported NPL proxy declined at Halyk (-86 bpts to 21.3%) and Eurasian (-58 bpts to 11%). Halyk added 52 bpts to provisions, which stood at 23.9%. Loans overdue by 90+ days were almost unchanged (+9 bpts to 16.4%), while total loans overdue increased 575 bpts to 24.9%. KKB's total loans overdue jumped 866 bpts to 35.7%, with loans overdue by 90+ days increasing 368 bpts to 23%. KKB's NPL proxy was almost unchanged at 28.6% (-3 pts), while provisions increased 54 bpts to 31.4%. Bank CenterCredit also showed a deterioration in total loans overdue and loans overdue by 90+ days, which rose 523 bpts and 77 bpts, respectively, while the NPL proxy was stable at 14.5%. Nurbank continued to show a rapid deterioration on most asset quality measures. Action: Overall negative, in our view, although some January seasonality might be reflected in the jump in total overdue stats. Kazakh banks: Asset quality stats (January 2011 regulatory reporting)

30. Kazakhstan could be PNB’s springboard for further CIS expansion bne February 24, 2011 India’s Punjab National Bank (PNB) may expand into other CIS countries after establishing its presence in Kazakhstan. PNB has had a representative office in Kazakhstan for a decade, and in December 2010 bought a majority stake in Almaty-based Dana Bank. The bank is now present in nine countries including India and Kazakhstan, and will soon open operations in Australia and Canada. “This is our first county within the CIS,” says Bhushan Bhatia, chief representative of PNB in Kazakhstan. “I don’t think we can stop in one point; this is just the beginning of our work in this region. It depends on the potential, but we will definitely look for other opportunities.”

31. KAZKOMMERTSBANK - HEATED BY STATE INITIATIVES Troika Dialog February 22, 2011 Active news flow on the creation of a distressed assets mechanism in Kazakhstan, state support for the construction sector and the approval of a support program for medium and large businesses have added fuel to Kazkommertsbank's share price rally early this year, in addition to the rotation to riskier names. Progress in regulatory initiatives has allowed us to cut our cost of equity by 75 bps, and we increase our target price 10% to $7.83 per GDR. While we think that Kazkommertsbank will be one of t he main beneficiaries of the programs, their impact on the bank's P&L is contingent on the implementation details and recovery values of collateral. We reiterate our HOLD recommendation on the stock. > Potential gains. With $4.9 bln in NPLs and $3.9 bln in restructured loans, covered by $3.7 bln in LLPs and around $10 bln of real estate collateral (0.75 LTV), the write-off of bad loans, subsequent provision release and sale of collateral could theoretically be a good trigger for earnings. However, NPL coverage is well below 100%, and the net result of write-offs would be highly contingent on the recovery value of the collateral. Our sensitivity study shows that the bank would incur losses at a recovery value of less than 70% but could post gains of up to $0.9 bln at a 100% recovery value. > Where prices are. The recovery on the real estate market remains a key trigger for Kazkommertsbank. At this point, only commercial real estate (11% of the bank's loans) has seen a marginal recovery. The residential market (16% of loans) has only just reached equilibrium following a 43% slump in prices since the peak and would need four years to return to 2007 levels even at 15% annual growth. The land market (13%) remains stagnant and illiquid. > Bad assets mechanism is still a big "if". While state support programs for residential construction ($480 mln) and corporate borrowers ($60 mln) are up and running, the main new initiative - the Distressed Assets Fund - is still in the initial development stage. The fund will issue bonds for purchase by banks and pension funds and use the proceeds to buy hopeless loans (which stand at $12 bln in Kazakhstan). The key details concern the pricing and securitization of bad assets, and both remain undecided. That said, we would not neglect the potential effect of the fund, and we await the details. > Valuation update. We reduce our COE by 75 bps to 13.0% on the back of progress m ade by the regulator in developing an impairment mechanism and approving support packages for banks and the economy. This still implies a 75 bps premium to Halyk Bank's COE due to a riskier profile and lower liquidity. > Multiples sensitivity. As the GDRs are up 33% YTD, the bank's 2011E P/BV has climbed to 1.0 (a 42% discount to Halyk Bank) and its 2011E P/E has risen to 13.2 (a 4% premium) under our expected 9.2% ROAE. Even if we assume that the mechanism will be launched this year, write-offs are more likely to have an impact on the bottom line from 2012. Next year, each $500 mln of NPLs written off could add up to 2.3 pp to 2012E ROAE (12%) depending on collateral value, transforming its 4% premium to Halyk Bank on P/E to a discount of up to 18%.

UKRAINIAN BANKS 32. Alfa Bank Ukraine plans capital increase; proves shareholder support; upside potential remains in ALFAUA 12 VTB Capital February 25, 2011 News: Alfa Bank Ukraine announced yesterday that its shareholder - Russia- based Alfa Group - had decided to increase the bank's statutory capital by 25% in June of this year. Our View: We believe the likelihood of the capital injection taking place is very high. The new capital would be equivalent to 30% of total end-2010 equity. We note that based on 2010 local financial statements, the bank does not need additional capital. The regulatory capital adequacy ratio was 17.0% (minimum is 10%) while the regulatory capital/total assets ratio was almost 14.0% (minimum is 9%) at the end of 2010. The bank's loan portfolio continued to stagnate, while loan loss provisions coverage ratio was almost 300%. Hence, in our view, the new capital is needed to underpin the bank's loan portfolio growth in 2011-2012. This move proves that the shareholders are committed to supporting the bank. And despite the fact that the bank's ALFAUA 12 bond trades quite narrowly (7.22%, 661bp over swaps), we still believe there is some price upside potential. For example, Ukrsibbank's UKRSIB 11 bond, which has a similar duration and comparable, in our view, credit quality, trades at a yield of 5.0% (430bp over swaps). Roman Luchkovsky 33. Bank Forum focuses on cleaning up balance sheet Dragon Capital February 24, 2011 News: Bank Forum, the 16th largest Ukrainian bank by assets as of end-2010, plans to significantly reduce its NPLs in the next two years via loan restructurings and collateral foreclosure. The bank has no intentions at this point to sell its portfolio of problematic loans to collection agencies due to unfavorable pricing conditions. Also, NPL write-offs are expected to be limited due to legal and tax ambiguities. In separate news, during yesterday's conference call on Commerzbank's better-than-expected 4Q10 results, representatives of Bank Forum's parent said the outlook for CEE improved somewhat and Forum Bank had shown a trend reversal in 4Q10 thanks to significantly lower risk provisioning, though the bank remained loss-making in the quarter. (Interfax, Bloomberg) Dragon view: As of end-2010, Forum Bank reported NPLs ("Doubtful" and "Bad" loans as per NBU methodology) at 37% of the total loan portfolio. We consider the bank's plans to cope with NPLs in two years to be rather optimistic (unless the bulk of bad loans is just written off against provisions), albeit valuation-positive should this best case scenario prove realistic. At this point, we maintain our 12-month price target of $1.097/share and a Buy recommendation on the stock.

34. Financial Cards and Payments in Ukraine Euromonitor February 22, 2011 Recovery after dramatic collapse In 2010, financial cards recovered after a sharp fall in 2009 which adversely impacted the number of cards in circulation as well as volume and value of transactions. Performance bounced back in 2010 and while there was significant growth, the number of cards in 2010 failed to match the recovery registered in 2006. Cash remains the common method of payment A high propensity to use cash for payment is evident in Ukraine. Consumers are more attached to cash for psychological reasons, as they still consider paper money to be a safer way to manage their expenditures. Another factor was the difficulties experienced during the crisis when many Ukrainians could not get access to their salaries, as many ATMs were not operating properly. The number of POS terminals per million inhabitants also falls well short of the European average and is much weaker than other card infrastructure indicators in Ukraine. It is evident that retailers are not willing to install POS terminals because of the high interchange fees demanded by banks which cannot be reduced because of the high interchange fees of international payment systems. Large retail chains install POS terminals because of the prestige rather than for commercial reasons. Visa and MasterCard are the preferred but expensive operators Visa and MasterCard are the leading operators of financial cards in Ukraine. They are preferred by issuers to national systems because of the prestige associated with international payment systems. Even though the entry and service fees of national payment systems are much lower than those for international payment systems, the leading banks prefer to collaborate with Visa and MasterCard. However, the high commissions associated with international payment systems prompted card market players and their associations to provide an adequate response from national payment systems to protect their interests. Attempts to launch national regulation are expected to escalate over the 2010-2015 year period. Salary payment programmes influence debit cards It is common for employers to make agreements with banks determining which accounts salaries are transferred to. In this way, the choice of debit card and bank account has no input from employees, but is determined by the company in which they are employed and the attractiveness of bank offers. Banks seek to attract new clients by changes in their financial instrument offerings. Within salary payment programmes, banks offer salary cards with a deposit function or a set of two cards; one salary card and a second debit card with debit function enabling consumers to effortlessly access their savings. Pre-paid cards are expected to develop strongly While debit and credit cards are fairly well-developed areas in financial cards in Ukraine, there are still great opportunities for pre-paid cards, both closed loop and open loop variants. Pre-paid cards have a wide range of applications, including payment via the internet, travel by public transport, tickets for major sporting events, gift cards and social benefits cards. In 2010, there were only a few pre-paid cards present in Ukraine, but this product is expected to increase rapidly and to find new uses over the 2010-2015 year period.

35. Gov't to use Oschadbank to recapitalize Nadra Bank Dragon Capital February 21, 2011 News: The government decided to inject capital into Nadra Bank by providing a subordinated loan via state-owned Oschadbank, with the UAH 3.5bn capital injection into Oschadbank to be financed with Treasury issuance. Previously the NBU considered using Ukreximbank for this scheme but changed its mind due to opposition from the bank's external creditors. Separately, Manmade Enterprises, which holds 30.74% of Nadra Bank shares, has challenged the legal base under the extension of the term of the bank's temporary administrator, and demanded that the bank return a $60m loan to HSBC Trustee, as the recently approved UAH 3.5bn capital increase for Nadra would dilute the 50% stake in the bank used to secure the loan to 5%. (Ekonomicheskie Izvestiya, Kommersant) Dragon view: Last week Nadra announced a UAH 3.5bn share capital increase, to UAH 3.89bn. We think the newly issued shares will be acquired by local businessman Dmytro Firtash, representing the second half of the planned recapitalization package for Nadra. Nadra's recapitalization needs were previously estimated at UAH 8.3bn, to be split equally between the government and Firtash. 36. Raising Capital Requirements Is Credit Positive for Ukrainian Banks Moody's February 21, 2011 Last Tuesday, Verkhovna Rada, the Ukrainian parliament's lower chamber, adopted a bill increasing Ukrainian banks' minimum share capital requirement to UAH120 million ($15.1 million) from UAH75 million ($9.4 million).1 The new legislation is credit positive for Ukrainian banks, as it will strengthen their capitalization and encourage much-needed consolidation, particularly among weaker banks. The new legislation stipulates that existing banks must increase their share capital to the minimum within five years, while newly created institutions will have to meet these new requirements upon registration. As of 1 January, there were 175 operating banks in Ukraine. Of that total, 82, or 6% of total system assets as of 2010, did not meet the new minimum share capital requirement. As shown in the exhibit below, affected banks are relatively small institutions with less than 1% market share and thus may become acquisition targets for midsize and larger Ukrainian banks or serve as an entry point to Ukraine for foreign investors.

37. Tymoshenko to appeal to court against transfer of Hr 3.5 billion from Oschadbank to Kyiv Post February 22, 2011 Batkivschyna Party Leader and former Prime Minister of Ukraine Yulia Tymoshenko is to appeal against an instruction of the Cabinet of Ministers of Ukraine on the allocation of Hr 3.5 billion by Kyiv-based Oschadbank to a private bank. "You know that the government headed by [Ukrainian Prime Minister Mykola] Azarov has taken an official decision [and issued] and instruction on the allocation of Hr 3.5 million by Oschadbank to [Ukrainian businessman Dmytro] Firtash's bank. I think this oversteps all limits, because giving Hr 3.5 billion to the bank owned by Firtash from the state-run Oschadbank, which has to credit the economy and return deposits to people, [is giving money] to a criminal and a corrupt [person], to his shadow scheme - [and] even for Yanukovych-Azarov this oversteps all limits," Tymoshenko told reporters on Monday in Kyiv after her interrogation at the Prosecutor General's Office of Ukraine. Read more: http://www.kyivpost.com/news/politics/detail/97773/#ixzz1Eg0U2ruV 38. Ukraine's banks improve operations in January Phoenix Capital February 22, 2011 Event: Ukraine's banking industry reported a net loss of UAH 5.2 mln in January 2011, the National Bank of Ukraine reported yesterday (Feb. 21). Aggregate bottom line for banks improved notably in Y-o-Y terms - in January 2010, net losses totaled UAH 507.7 mln. The NBU added that total revenues increased 1.7% Y-o-Y in January, while expenses retreated 2.7% Y-o-Y. In addition, Ukraine's central bank reported a decrease in the delinquent portion of banks' credit portfolios to 11.1%. Impact: The news is positive for the Ukrainian banking industry. Rationale: Improvement in financial performance of Ukrainian banks is primarily attributed to a decrease in charges for loan losses (-64.4% Y-o-Y to UAH 1.3 bln in January). Importantly, banks managed to strengthen their earning capacity on the back of growing non-interest related incomes, while decreasing funding costs helped to curb interest expenses. The NBU's estimate of delinquent portions of credit portfolios points to a decrease in NPL/total loans ratio. As a result, banks should be

able to set reserves/total credits metrics on downward path, thus keeping reserves charges at modest levels throughout 2011. Oleksandr Lozovyi

EURASIA BANKS 39. Azerbaijan: Bank Respublika extends customer base by 55% APA-Economics February 24, 2011 As of January 1, 2011, Azerbaijan-based Bank Respublika’s assets stood at AZN 257.387 mln, down 26% from year ago. Bank says the loan portfolio decreased by 20% to AZN 157.855 mln, including consumer lending by 41% to AZN 41.259 mln, loans given for until 12 months by 40% to AZN 40.455 mln, over 12 months by 24% to AZN 117.300 mln, through AMF rose 8.9% to AZN 10.998 mln, through bank’s own mortgage program slipped 25% to AZN 6.727 mln. Deposit portfolio declined 35% to AZN 115.387 mln, as well population’s deposit dropped 33% to AZN 63.268 mln, term deposit fell 47% to AZN 68.338 mln, and demand deposit soared 24% to AZN 47.048 mln. At the same time, total capital slipped 13% to AZN 48.295 mln, including authorized capital surged 23% to AZN 37.459 mln. Income lowered 32.3% to AZN 37.184 mln, expenditure went 16% down to settle at AZN 39.394 mln. Bank finished 2010 with loss in amount of AZN 2.210 mln. Number of customers grew 55% to 126 022, active plastic cards surged 54% to 42 869 and staffs increased by 3.9% to 494. Remind that, Bank Respublika has been in operation since 1992. The bank operates 27 branches, 44 ATMs and 260 POS-terminals across the country. 40. Azerbaijan: Mugan Bank increases authorized capital APA-Economics February 24, 2011 The State Committee for Securities registered the issue prospectus of ordinary registered book-entry shares of MughanBank OJSC. State registration number AZ100100546P Issue volume AZN 4 000 000 Quantity of shares 20 000 Par value AZN 200 Underwriter Technika Capital Managment LLC Remind that, Mugan Bank has been in operation since 1992. 41. Azerbaijan: Mugan Bank increases profit by 5 times APA-Economics

February 21, 2011 As of January 1, 2011, Azerbaijan-based Mugan Bank’s assets stood at AZN 208.675 mln, up 39% from year earlier. Bank says loan portfolio rose 35.3% to AZN 135.271 mln, including consumer lending declined 16% to AZN 19.261 mln, loans given through AMF soared 96% to AZN 18.508 mln and overdue credits advanced 4.9% to AZN 1.252 mln. Deposit portfolio grew 40.2% to AZN 82.358 mln, as well population’s deposit surged 27% to AZN 56.562 mln, trem deposit climbed 25% to AZN 52.821 mln, demand deposit gained 79% to AZN 29.357 mln. Total capital rose 15% to AZN 25.069 mln, authorized capital grew 5.3% to AZN 20 mln. Income soared 51% to AZN 23.649 mln, expenditure surged 41% to AZN 21.400 mln. Profit increased by 4.9 times to AZN 2.249 mln. Remind that Mugan Bank has been in operation since 1992. The bank operates 30 branches, 35 ATMs and 73 POS-terminals across the country. 42. Azerbaijan: Pasha Bank makes public outcomes of 2010 APA-Economics February 25, 2011 As of January 1, 2011, Azerbaijan-based Pasha Bank’s assets stood at AZN 509.074 mln, up 66% compared to a year ago, Farid Akhundov, Chairman of the Board of Directors told at the press conference. According to him, 36% of AZN 509.074 mln was credits given to customers, 31% - investments in securities, 17% - cash, 15% - interbank credits and other assets. Loan portfolio rose by 1.6 times to AZN 194.860 mln, Effective stock level on portfolio made 6.2%, while this was 2% in 2009. Non-performing loan made 0.6%. Net profit decreased by 27% to AZN 11.694 mln. He also noted that interest income was AZN 33.842 mln, non-interest income doubled to AZN 5.264 mln, expenditures related to employees increased by 1.7 times to AZN 5.680 mln. Documentary operations stood at AZN 30.330 mln, ROE at 17.6%, ROA at 4%, liquidity ratio at 171%, capital adequacy at 50%. Speaking about the diversification of loan portfolio Farid Akhundov said that, 49.93% of this was the credit allocated for trade and service sector, 17.91% to construction sector, 14.47% to industry and production sector, 10.26% to hotel business: “Investment in securities rose 86% to AZN 156.5 mln, interbank placements soared 54% to AZN 74.6 mln, Non-interest income from treasury operations rose 105% to AZN 4.1 mln, including trade financing portfolio surged 32% and credit lines by Western banks for Pashabank climbed 29%”, he said. Delivering speech at the event Director of the operations department at Pasha Bank Emil Hajiyev said that application of the first scaled project of the bank – modern foreign automated system has been realized successfully. Purposes such as automatization of most operations, broadening of functional spectra and

strengthening of controlling system over operations were achieved by the application of Latvian “Tieto” Company’s “BankSyst” automated bank system. All main modules of the system have been put into exploitation for 1.5 year. To Hajiyev, Tieto’s special card module – Card suite and intersystem interface has been applied during this period as well: “Consequently, within the last year, the bank presented Corporative card, Customs Card, Wage, Flexi card and Premium Card”. Hajiyev noted that Service Center had been established for card owners to get information on services more easily. At present, the service operates within 15 hours, but it will be prolonged to 24 hours. 43. Azerbaijan: Pasha Bank to open representation in Switzerland APA-Economics February 25, 2011 Azerbaijan’s Pasha Bank is intending to open representation in Switzerland in the near future, Chairman of Pasha Bank’s Board Farid Akhundov told APA. To him opening of representation in Switzerland, opening of corresponding accounts, as well as widening of international cooperation is considered in the plans of the bank. “I can not say concrete time connected with the opening of representation. At present, works are carried out in this direction, market of this country is investigated on legal and other features”, said Akhundov. Note that, currently, the bank has two departments in Baku. 44. Azerbaijan: VTB Azerbaijan gets decrease in financial indexations APA-Economics February 22, 2011 As of January 1, 2011, VTB Azerbaijan’s assets stood at AZN 26.790 mln, down 15% from year earlier. Bank’s Baku office says the loan portfolio soared by 3.6 times to AZN 15.271 mln, including consumer lending dropped 54% to AZN 0.137 mln, deposit portfolio slipped 49% to AZN 1.767 mln, as well population’s deposit slid 65% to AZN 1.160 mln. At the same time, total capital declined 21% to AZN 19.726 mln, as well authorized capital remained unchanged at AZN 23.815 mln. Note that, income surged 58% to AZN 3.089 mln, expenditure climbed 622% to AZN 5.700 mln. Bank’s loss rose 2.8 times to AZN 4.472 mln. Remind that, VTB Azerbaijan has been in operation since 2009. 45. Azerbaijan-based banks ranking for income APA-Economics February 24, 2011

APA-Economics regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance. The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by income in accordance with the available data as of January 1. 2011. (mln. AZN) * These banks did not release indexes.

46. Azerbaijan-based banks ranking for profit APA-Economics February 24, 2011 APA-Economics regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance. The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by profit in accordance with the available data as of January 1. 2011. (mln. AZN) * These banks did not release indexes.

47. Azerbaijan-based banks ranking for total capital APA-Economics February 24, 2011 APA-Economics regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance. The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by total capital in accordance with the available data as of January 1. 2011. (mln. AZN) * These banks did not release indexes.

48. Georgia: Bank of Georgia sells an 80% stake in BG Bank for US$9.6m Visor Capital February 21, 2011 The transaction vales the stake at 0.82x P/B. Bank of Georgia retains a 19.4% stake in its Ukrainian unit, BG Bank. We expect a positive share price impact, as BG Bank had been a loss-making unit of Bank of Georgia over the last few years. Bank of Georgia (BGEO LI) announced on Friday, 18 February 2011 that it has sold an 80% equity stake in BG Bank, a subsidiary unit in Ukraine. The Bank sold the stake to a number of Ukrainian individuals. The transaction was valued at US$9.6m (GEL17m), which translates to a ratio of 0.82 times the book value of BG Bank (which had totalled US$14.6m (GEL26m) under IFRS as of 31 January 2011). Bank of Georgia still remains a shareholder of BG Bank, holding a 19.4% equity stake. The Bank does not have debt exposure to BG Bank or any other Ukrainian entity. Irakli Gilauri, the CEO of Bank of Georgia, stated that the Bank’s strategy will now focus on the Georgian market and it currently has no plans for international expansion. We expect a positive share price impact, as we believe the market will welcome the news because BG Bank was a loss-making unit of Bank of Georgia over the last few years. We currently have Bank of Georgia under formal research coverage, available to our clients. 49. Mongolia: Banks attract more savings, issues more loans Monet/News.mn February 24, 2011 It has been officially announced that the economy grew by 6.1% at the end of February over the same period last year. If figures from the shadow economy were included, the real growth figure could well be 10%. There can be no such speculation over figures to do with commercial banks. Their assets have increased by 55% or MNT4.5 trillion in comparison with February, 2010. The total amount they have given as loan has increased by 25% or MNT3 trillion. Not much should be read into how much capital banks have, but the increase in loans does indicate the economy is recovering. It has also been revealed that 90% of the total savings in banks is in the name of only 3% of account holders. This does include some foreign sources but mostly they are domestic accounts. That the more well-to-do 3% of Mongolians have earned and saved more does not mean an improvement in the economic situation of the overall population. The rise in saving certainly shows that trust in commercial banks is returning, but their increased liquidity also raises fears of inflation. Right now, the rate of inflation is 13.8% but the International Monetary Fund feels this could reach 25% this year. Bankers say they are granting more loans and repayment rates have also improved.

SE BANKS 50. Bulgarian Corporate Commercial Bank net profit BGN 74 million in 2010 ELANA <p>February 23, 2011<p> <p>Corporate Commercial Bank (6C9: 78.10; +3.10%) posted BGN 74 million consolidated unaudited net profit for 2010 or 16.9% above the 2009 result. The credit portfolio amounts BGN 1.65 billion and is 61.4% of the total assets as of the end of 2010. Deposits were BGN 2.4 billion or 35.4% above the last year result. The interest toward the position remained high but the lack of sellers limited the trading with the bank's shares.<p> 51. Moody's withdraws ratings of Bulgarian MKB Unionbank Moody's <p>February 21, 2011<p> <p> Moody's Investors Service has on Friday withdrawn the E+ standalone bank financial strength rating (BFSR) of MKB Unionbank AD (Bulgaria) ("MKB-UB"), mapping to a Baseline Credit Assessment (BCA) of B1 and the long-term and short-term local- and foreign-currency deposit ratings of Ba3/NP. At the time of the withdrawals, all these ratings had a stable outlook.<p> 52. Romania's Bucharest Stock Exchange and SIBEX shareholders to decide on merger on April 29 IEBA <p>February 14, 2011<p> <p> Bucharest Stock Exchange (BVB RO) and SIBEX (SBX) shareholders will decide upon their merger on April 29. According to a Bucharest Stock Exchange statement, the merger with the Sibiu Monetary Financial and Commodities Exchange SIBEX will be decided on April 29 by its shareholders, the Bucharest Stock Exchange market acting as the absorber company. SIBEX has also set the Shareholder Meeting on April 29.<p> 53. Romanian Banca Transilvania's CEO makes comments to the media Raiffeisen <p>February 23, 2011<p> <p> In an interview with the local media, the CEO of Banca Transilvania (TLV) Mr. Rekkers said that he expected NPLs to peak at the end of the first half of the year. This statement is in line with our view on NPLs development for 2011. Separately, Mr. Rekkers said that TLV was targeting to increase its market share on SMEs segment. This seems as a return to its roots after 2010 when the bank has tried to enlarge its market share on larger companies. The reason behind this is the stronger competition of corporates segment where prices have started to come down. We view this piece of news as neutral.<p> 54. Romanian SIFs - BCR has an upbeat 2011 budget according to local media Raiffeisen <p>February 14, 2011<p>

<p> According to local media, BCR has a bullish 2011 budget, profitability wise. Thus, the IFRS consolidated net profit is seen at RON 759 mn, while the bank's net profit for 1-3Q 10 stood at RON 495 mn. Under RAS, BCR has set the target for the net profit at RON 250 mn, while according to the same sources the bank posted a net profit of RON 75 mn under the these standards during the first three quarters of 2010. Risk costs under IFRS are expected at RON 1.86 bn while they stood at RON 1.59 mn during the first nine months of 2010. BCRs gross loans are expected to grow to RON 56.28 mn by the end of year, up 9.7% on the September 2010 figure. We view the budget positively from the SIFs perspective which own between them over 30% of the bank's capital. <p> 55. The "good" banker bne <p>February 15, 2011<p> <p>Crime scene investigators, pathologists and psychological profilers all have their own TV series these days, but no-one's ever made a cop show about the cleaners who arrive at the blood-soaked murder scene with mop, bucket and disinfectant. Similarly, while the public gaze remains directed against bankers who managed to bring highly profitable businesses to their knees, much less attention has been paid to the band of professionals performing the opposite function: removing failed banks from the public balance sheet and getting money back for the taxpayers. <p> <p>Christopher Gwilliam is one of this unsung band of financial fixer-uppers. When a good bank meets an untimely demise, the 58-year-old's phone starts ringing, and over the years he has had clients in Hungary, Serbia, Croatia and Romania on the other end of the line asking him to bring his mop and bucket. <p> <p>In 2010, the call came from Riga, where the Latvian government had decided to split the notorious Parex Banka down the middle into a functioning "good" bank that has been rebranded Citadele, and a "bad" bank containing Parex's more problematic assets, such as its heavily devalued real estate holdings and portfolio of problem loans. "I think the job was a magnificent fit for my previous experience. The match was perfect in that sense," Gwilliam tells bne of the reasons he became Parex chairman. <p> <p>The British banker's manner is friendly and informal, but "bad bank" is not a term he likes. "We're not a bad bank," he insists. "We're a properly run, regulated, well-run organisation with a very good team. But we are full of 'bad', or rather 'non-paying', assets. That's the point - we are getting some of them to pay. We are creating value for the state. Every day that we go forward, we are adding value to the bank, although selling today I seriously believe would be a disaster." <p> <p>Troubled times<p> <p>Disaster was certainly the word in 2008 when the collapse of the high-flying Parex pushed the entire Latvian state to the brink of bankruptcy and necessitated a €7.5bn bailout from the International Monetary Fund (IMF) and EU. Over the next two years, the state pumped more than €1bn into propping up Parex and making payments on outstanding syndicated loans, the last of which (worth €232m) is due in May. <p>

<p>On the face of it, Gwilliam's modus operandi seems simple enough: "Establish what's in the book, identify the easy to sell assets at most value immediately, identify the medium value ones that need some polishing and may take some time to sell, and then put aside the ones that will have value in the future but are not worth doing anything with at the moment, like all the holes in the ground we have dotted around the country." <p> <p>"It's probably what a liquidator would do, except a liquidator would move faster and wouldn't care about losing more money," he says. <p> <p>In the first five months after the bank launched its operations on August 1, Gwilliam's team managed to claw back €85m by loan restructuring and sale of securities. That may not seem like a huge sum, but bearing in mind that the IMF is currently asking Latvia for supplementary budget cuts of €71, its significance is clear. <p> <p>Despite his 20 years' experience, Gwilliam admits to being "absolutely amazed" when he saw the extent of Latvia's problems in the real estate sector after its hugely inflated property bubble burst. "This is probably the worst I have ever seen where very ordinary people had suddenly become property speculators. I have never before seen the range nor volume of people involved, from university students to 80-year-old pensioners." <p> <p>Rampant property speculation managed to drag in many other sectors of the economy too, leaving a complex web of debt and collateral on Parex's books. "There's the mortgage book which is completely like this, or the commercial book where the loan is the principal claim that we have but behind it is a bunch of real estate for which the company was set up essentially to do property transactions. Further, we have some commercial industrial transactions which actually relate to business, but which will always have some property behind them. That I think is what we will end up dealing with because it has to be realised we are a bank: we don't do new business, we don't take deposits, we don't make loans and our purpose is to realise the cash. We are a very unusual animal in that respect. We can only spend money on the assets we have acquired in order to maintain or enhance their value." <p> <p>To many Latvians, the mere mention of the word "Parex" is enough to provoke apoplexy. Some find it impossible to believe that a bank that became synonymous with dodgy dealing by arrogant oligarchs could have any redemption. Gwilliam refuses to let the problematic Parex name obstruct his efforts and finds it hard to understand why elements of the Latvian media seem unable to accept the new reality. "Surely there's been enough in the press by now that the people realise that the people here running this bank are completely different?" he asks. "They are nothing to do with the Parex before. We have stated so many times: our job is to get the cash so we can repay first the syndicated loan in May, and then the state as we gather the money in." <p> <p>"I knew nothing about Parex until March last year when someone first mentioned it as a possibility. By the time I got appointed in July, I had read a bit more, but I had no knowledge of the innards of it until August 2nd when I arrived in my office and the first thing that dropped on my desk - literally - was an action against the previous managers and owners. You can imagine how happy I was." <p>

<p>Baltic welshers<p> <p>If changing public perceptions of Parex is a tough ask, it is a doddle compared to the task of making politically-connected businesspeople pay up. Some, it turns out, were being less than exemplary with their Parex accounts while simultaneously pontificating to society about how to make money. Several of these former captains of capitalism have declared bankruptcy and are making every effort to wriggle out of their obligations. "If we believe there are real attempts to avoid responsibilities where corporate structures are set up quite blatantly with the objective of avoiding paying, then we will do what we can to chase those down. If necessary the full weight of the law will appear before these people and their companies," Gwilliam asserts. <p> <p>However, the slow pace of the legal process in Latvia combined with the limited scope of his remit - by 2017 Parex will be liquidated - makes the prospect of long and ultimately fruitless litigation a real possibility. <p> <p>Perhaps Gwilliam's major contribution to Latvia so far has been to provide some much-needed perspective. Rather than being a national humiliation or some sort of righteous punishment from on high, the failure of a bank and its subsequent clean-up is a rather prosaic process, he insists. "It's a well-worn path for me. But it's new for Latvia and it's new for everybody who's in charge in Latvia. That's why it's a bit frightening and unknown - and that's part of the problem. It's a lack of experience [among policymakers] which has not educated the public well enough in what they're actually doing. This is a very, very normal transaction." <p> <p>On what is literally the billion-dollar question of whether the state will ever recoup the money it has used to prop up Parex, he is candid: "We'll do our best to get all the money back, but that I think would be a miracle. The comprehension of the public has to be that it was always extremely unlikely that all of the money would be got back. However, if the market goes stupid again, then yes it would be possible. But I don't expect the market to go stupid again in the next seven years - it will take another three before it goes stupid..." <p> 56. The planned listing of Romanian BCR bank not going smoothly Raiffeisen <p>February 22, 2011<p> <p>According to local media the planned listing of BCR whose amended deadline was November 2011 is not running smoothly. The bank's CEO has recently said that the listing was not a matter of time but more a question of the liquidity of the domestic Stock Exchange. Some of the SIFs which are protected by the privatization contract are pushing for a listing within the agreed timeframe. In early March, the two parties, Erste Group, BCR's majority shareholder and the SIFs which own between them more than 30% of the share capital will meet to discuss about the listing and the dividends the bank might pay out of the 2010 net profit.<p> 57. Turkey's Akbank had a strong operating performance in 4Q10 Erste <p>February 14, 2011<p>

<p> Akbank reported TRY 690mn bank?only net profit in 4Q10 financials (up by 57% q/q and remained flattish compared to the same quarter of the last year). The results remained below the market consensus estimate of TRY 738mn and our estimate of TRY 766mn. <p> <p>2010FY bank?only net profit stood at TRY 2,857mn marking a 5% y/y growth and resulting in an RoE of 18.3%.<p> <p>The most striking point of 4Q10 was the NIM recovery of 240bp q/q thanks to the positive contribution coming from CPI linkers. Besides that loan/deposit spread remained unchanged over the previous quarter.<p> <p>The growth rates in loans and deposits came in line with the sector average. The growth in auto loans in 4Q10 was astonishing at 29% q/q thanks to the low base effect. <p> <p>Comment: The operational performance remained strong in our opinion. However, the lower than expected bottom?line came due to the poor derivate side. Given the recent strength of the share price, the lower than expected earnings may keep a slight pressure on the share price in the short?term. <p>

CE BANKS 58. FHB changes gear after acquiring Allianz's Hungarian unit Equilor February 23, 2011 FHB reported HUF 5.2bn pre-tax profit for Q4 2010 (up 174% yoy) due to the consolidation of newly acquired Allianz Bank unit. In addition, a one-off tax item helped net profit to quadruple to HUF8.2bn, but this is also related to Allianz Bank. Hence, the reported data are not comparable to the basis periods. Net interest income declined 31% to HUF6.8bn on a yearly basis, while net F&C income doubled to HUF0.8bn. Provisioning was HUF0.8bn in the quarter, slightly above preceding quarters' figure, but still a relatively low figure. NPLs rose to 5.5% from 4.7%, hence this is a relatively good loan portfolio in Hungary, but FHB is not immune to worsening macro environment either. Hence, NIM was 3.25% in Q4, below the recent figure due to escalating costs of refinancing, while eroding portfolio quality could have also contributed to this. In our view, the quarterly results are almost only linked to one-offs, while operating figures have not reflected synergies yet. Therefore, we expect a slight rebound in the share price considering the recent sell-off, while domestic macro outlook and global market mood will remain key driver for the share. 59. Hungary bank levy eats up profits in 2010, PSZAF data show bne February 24, 2011 Hungarian banks had combined after-tax profit of HUF 38.5bn in 2010, down sharply from HUF 209.1bn in 2009, data compiled by financial market regulator PSZAF show, MTI reported.

The extraordinary tax on financial sector companies ate into profits in 2010: banks' combined "other non-interest revenue" -- the line that contains the tax -- came to negative HUF 343.2bn in 2010 compared to negative HUF 84.3bn in 2009. The data compiled by PSZAF are for banks limited by shares and exclude the state-owned Hungarian Development Bank (MFB) and Export-Import Bank, as well as clearing house Keler. 60. Hungary bank's loan quality deterioration seem to have stopped last year Equilor February 24, 2011 The quality deterioration of the Hungarian lender's credit portfolio nearly halted in the last quarter of 2010 - said the spokesman of the financial watchdog. This is to be judged as a positive sign for most of the Hungarian lenders, although we expect a more striking turnaround as of this year's performance. OTP that has the biggest retail segment in the country will report on 4th March. According to fresh data's, the overall loan quality stagnated, and in the business segment some improvement was already felt in the fourth quarter. As for the Hungarian banks' loan activity and provisioning needs, the most crucial figure comes from the retail segment where non-performing retail loans - those past 90 days overdue - still rose to 8.1% at the end of the quarter from 8.0% in the previous quarter. In the gross retail lending, NPL came in at 9.3% at the end of Q4 - according to the watchdog. The slower pace of deterioration might give a positive impetus for banking activity in the country as fewer provisioning is required. On the other hand, the watchdog reported yesterday, that Hungarian bank's combined after-tax profit fell dramatically in the last quarter mainly due to the special surtax introduced in 2010. Complied preliminary data by the watchdog suggest that net profit will come in at around HUF 38.5 billion, down sharply from HUF 209.1 in 2009. Pre-tax profit fell also by 76.3% to HUF 58.2 billion - according to the financial regulator. 61. Nordea sees Latvia's lending market to have more new in 2011 bne February 21, 2011 Latvia's lending market will see more new deals this year, but the lending portfolio is not expected to grow, said Valdis Siksnis, the head of the Latvian branch of Nordea Bank Finland (Nordea), in an interview with Latvian business daily Dienas Bizness on Monday, BNS reported. "A year and a half ago we predicted that the corporate lending market would grow. It was too optimistic -- the amount of loans issued both to companies and individuals declined. New loans were issued, but the sums paid back and written off in losses were higher. It was especially hard to forecast the losses. This trend is to continue for some time, which makes forecasts more complicated," said Siksnis. In his opinion, the corporate loan portfolio will not growth this year either. "However, growth might return sooner in the corporate lending market than in individual lending. The largest deals might be related with infrastructure projects, there is activity also in renewable energy projects. We have been cautious about individual

lending also earlier, but, unfortunately, I believe that the new deals will not compensate for the repaid loans and sums written off in losses, and the individual loan portfolio this year will decline by a couple of percentage points. The average sums of loans are smaller than before the crisis due to the real estate prices," said Siksnis. The Latvian branch of Nordea Bank Finland ranked third among 29 Latvian banks by assets at the end of last year. 62. Poland bank BRE insists it remains strategic asset for Commerzbank bne February 23, 2011 Germany's Commerzbank continues to see its Polish arm BRE Bank as an important strategic asset, BRE said in a statement on Wednesday. BRE and its units will continue to take advantage of Commerzbank's financing, it said.