RUSSIAN PRIVATE BANKS –KEY MARKET PLAYERS!

Michel Perhirin, CEO, MDM Bank

Russian Economic and Financial Forum in Switzerland

Seventh Session, Zurich 16 – 17 March 2008

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MARKET TRENDSMARKET TRENDS

Banking Sector

Conclusions

CONTENTS

Private Banks in 2007

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MARKET TRENDS

Volatility on the financial market is a result of low capitalization and dependence on the world’s markets in New York, London and Asia.

On 11 March, S&P changed its long-term ratings forecast for Russia from Stable to Positive. On 12 March, S&P changed its ratings forecast for two Russian state banks to Positive.

As of 4 February 2008, the Central Bank of Russia (CBR) increased the refinancing rate by 25 basis points to 10.25 percent. At the same time, the CBR increased the key interest rates by the same basis points.

Tight credit is expected to increase in the upcoming months. According to the Moscow Interbank Currency Exchange (MICA), in the first quarter, Russian banks and companies are expected to pay more than USD 20 bln in external debt (and about USD 120 bln for the entire year). Big share of this debt falls to the share of foreign “daughters”, funded by their mother companies.

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MARKET TRENDS

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If not for structural weaknesses, Russia would already be an A-rated country

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MARKET TRENDS

Banking SectorBanking Sector

Conclusions

Private Banks in 2007

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BANKING SECTOR CONTINUES TO GROW

The banking sector’s assets in 2007 grew by 44.1 percent to USD 824.6 bn. A decrease in the growth rates is expected in 2008.

With GDP expected to grow by 7-8 percent (to USD 1.4 trillion) in 2008, the ratio of banking sector assets to GDP could reach 75 percent, which is the current level for Poland and Lithuania.

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BANKING SECTOR CONTINUES TO GROW

The asset growth rate in 2007 remained at 44.1 percent.

Capital rose faster than in 2006, mostly on the back of state banks.

Corporate (+51,6%)

and private (+57%) loans increased at good rates.

The deposit growth rate was lower in 2007 versus 2006 for the same indicators.

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M&A ACTIVITY IS ON THE RISE

Foreign banks showed interest in the market. Recent examples from end-2007 are OTP (Hungary) and Uraltransbank and Marfin Popular Bank (Greece) as well as Rosprombank and Hapoalim (Israel) and SDM Bank.

Some of Russia’s largest private banks are seeking strategic partnerships with foreign institutions, for example:

Rosbank (buyer: SG - $2.33 bln for 50%+1 share)

Expobank (buyer: Barclays - $745 mln for 100%).

Major factors in M&A activity

2006 Jan-Oct 2007

Amount of deals (USD mn)

2530.8 2406.0

Number of deals 32 33

Average value of a deal (USD mn)

79.1 72.9

Source: MA-Journal.ru, BDO

M&A deals in 2006-2007

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MARKET TRENDS

Banking Sector

Conclusions

Private Banks in 2007Private Banks in 2007

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PRIVATE BANKS IN 2007

When dividing the Top 30 banks into state, foreign and private Russian banks, a comparison shows the following:

Private Russian banks lag state and foreign banks in terms of asset growth rate …

… as well as in terms of capital growth rate. The state sector is the leader.

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PRIVATE BANKS IN 2007 – CORPORATE BUSINESS

Private Russian banks in the Top 30 increased corporate loans by 46.5 percent in 2007, which was less than their state and foreign competitors.

Corporate deposits rose at a decent rate of 54.5 percent, which was higher than the rate for foreign banks.

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PRIVATE BANKS IN 2007 – RETAIL BUSINESS

The difference in the growth rate in the retail segment was not as noticeable. Indeed, private loans from private banks in the Top 30 rose by 51.3%.

Private deposits in private Russian banks grew by nearly 40 percent, which came as no surprise, given that there is increased interest on the part of all players in this funding source.

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MARKET TRENDS

Banking Sector

ConclusionsConclusions

Private Banks in 2007

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CONCLUSIONS

In 2008 and going forward, the Russian banking sector expects:

- Large players to increase their presence in the regions

- A growth in interest rates for credit

- Sector consolidation

- A search for new funding resources within the country

Private Russian banks will very likely need to apply smart strategies to operate successfully on the market by:

- Working with small businesses and retail clients

- Offering high-margin products and battle for commission income

- Searching for internal resources to increase efficiency

-Better customer service and products

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OUTLINE: MDM BANK

– Established in 1993, MDM Bank currently is one of the largest Russian privately owned financial institutions, with a national network of 35 branches and 134 other outlets in 73 cities.

– Universal Bank: retail, corporate, investment banking, small business banking, private banking and asset management• 7,000 corporate clients• Over 5,000 SMEs • Over 325,000 retail clients

– Leader in Corporate Governance: MDM is the first and only Russian bank to be awarded a CGS score by S&P, which ranks MDM third in Russia behind NYSE-listed corporates Mobile Telesystems and Wimm Bill Dann.

– Leading positions in Russian banking sector among private, Russian-owned banks – 4th by capital and 5th by assets as of YE 2007 (by Russian Accounting Standards)

High International Credit Ratings

Notes: Data for MDM Bank.FX translation rates: End of period for balance sheet data (2005: 28.7825, 3Q06: 26.7799 2006: 26.3311, 3Q07: 24.9493); average for the period for income statement data (2005: 28.2864, 3Q06: 27.3344, 2006: 27.1852, 3Q07: 25.8905)

MDM Bank Key Highlights