“Still the rocky road…”

Volodymyr Lavrenchuk, CEO, Raiffeisen Bank Aval CIS Bankers, 3 June 2013

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Raiffeisen Bank International. Main facts

§  Raiffeisen Bank International AG (RBI) regards both Austria, where it is a leading corporate and investment bank, and Central and Eastern Europe (CEE) as its home market. In CEE, RBI operates an extensive network of subsidiary banks, leasing companies and a range of other specialised financial service providers in 17 markets.

§  In total, around 60,000 employees service about 14.2 million customers through in more than 3,000 business outlets, the great majority of which are located in CEE.

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Raiffeisen Bank Aval. Main facts

§  822 branches §  More than 13,700 employees §  More than 3 mln clients §  Raiffeisen Leasing Aval, Raiffeisen Aval Asset

Management, Ukrainian Processing Center, Raiffeisen Investments

§  Total assets – € 4,8 bln., #4 in terms of assets §  Profit after tax in Q1 2013 – € 32 mln. (IFRS)

Focus on medium-sized companies, agricultural sector and export-

driven heavy industry, selective expansion in retail banking

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Raiffeisen Bank Aval. Current developments COST OPTIMIZATION

§ Consolidation of regional governance: 25 regional directorates are consolidated to 7 regional macro-hubs § Centralization of back office activities in the city of Kherson § Decrease of 27% of business outlets and 20% of staff since year-end 2008

NEW SERVICES § Internet-banking for PI clients 6 months after launch: 1200 transaction per day – 82,000 users § Doubling of acquiring volumes: April 2012 – April 2013. The Bank has 11,2% of POS, but 15% of transactions and 24% of volumes. § Introducing of contactless payments Visa PayWave та Mastercard PayPass. We are: § First international bank, which launched Visa payWave § First bank, which issued PayWave for Premium product (Visa Gold) § First bank, which issued PayWave on Instant Issue Cards § First bank, which issued PayWave with retailer (Watsons) and for refueling stations (Shell)

Source: National Bank of Ukraine, Raiffeisen RESEARCH

The price for pre-boom excesses has not yet been fully paid

•  Ukraine’s banking system remains in deleveraging cycle, lagging behind economic recovery process.

•  Loan-to-GDP ratio is sliding further, gradually realigning with country’s per capita income levels.

Ukraine loan-to-GDP ratios (%) Loans and GDP per capita (as of end-2012)

§ Potential ratios based on in-sample estimate § * Adjusted for shadow economy

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UA-07

UA-12

UA-14

Source: National Bank of Ukraine,

Anemic lending growth coupled with dedollarization of loan books •  Faltering economic growth, restrictive monetary policy and deteriorating

business climate dampened loan growth in 2012.

•  Steady dedollarization of loan book continues amid near-prohibition of new FX lending to households

Lending growth (% yoy) Loans by currencies

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Source: National Bank of Ukraine

The growing role of the domestic deposits

•  The role of domestic deposits is steadily increasing on the funding side, amidst a lack of non-deposit, long-term domestic funding and continued external deleveraging.

Deposit growth (% yoy) Banking system non-resident liabilities

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Source: National Bank of Ukraine, Raiffeisen RESEARCH

Improving structural funding profile

•  Given the strong deposit build-up, coupled with feeble loan growth, the structural funding profile of the Ukrainian banking system continues to improve.

•  Albeit, Ukraine’s loan-to-deposit ratio remains far above the desired levels of 100-110% and is the highest in the region.

Bank loans and deposits Loan-to-deposit ratios (as of end-2012)

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Source: National Bank of Ukraine, IMF, Raiffeisen RESEARCH

Asset quality remains the major concern

•  According to some estimates, NPL ratio is around 30% on average at the moment, albeit NPL peak has been already passed thanks to economic recovery, asset sales, loans workout and write-offs.

•  Headline capital position has visibly improved in the last few years.

Non-performing loans ratio, % Banking system capital

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Source: National Bank of Ukraine, Raiffeisen RESEARCH�

Improving financials, squeezing margins

•  The banking system returned to profitability in 2012 on the back of a sharp drop in provisions, although shrinking interest margins put pressure on banks’ financials.

Banking system profitability Banks’ financial indicators

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Source: National Bank of Ukraine, Raiffeisen RESEARCH

No visible changes in market concentration and consolidation

•  Ukraine’s banking system remains fragmented, characterized by a vast number of banks and low market concentration.

Market share of top 10 banks (%) Market concentration (5 top-banks in assets)

§ * Market share of top 5 banks in total assets as of end-2012

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Source: National Bank of Ukraine, Raiffeisen RESEARCH

Exit of foreign banks •  The deteriorating economic prospects for Ukraine and the increasingly

challenging environment in the home markets prompted an exit of foreign banks.

•  The gap is mostly being filled by few private domestic banks with aggressive growth strategies and valuable political connections.

Market structure by ownership (in total assets) Ukraine at the top of regional trend (foreign banks – losses in market shares – assets)

§ *Foreign banks' market share loss (in total assets) from Dec-08 to Dec-12, p.p.

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Banking sector: Cautious outlook

•  Given the unfavorable macroeconomic outlook, the lack of long-term domestic funding, and the weakness of the legal system, the near future does not look particularly bright for the Ukrainian banking sector.

•  Loan growth might rebound slightly in 2013, conditional on changes in monetary policy. However, we expect slight decrease in the loan-to-GDP ratio to persist for the next few years, given vague prospects for considerable de-shadowing of the economy. The loan-to-deposit ratio is set to slide further, as deposits continue to grow faster than loans.

•  The market structure will continue to shift in favor of local private banks, while the share of foreign-owned banks will shrink further.

2009 2010 2011 2012 2013e 2014f

Total  assets,  UAH  bn 880,3 942,1 1058,9 1127,3 1260 1415

Total   loans,  UAH  bn 717 ,5 724 ,0 793 ,2 810 ,6 884 ,0 974 ,0

Total   loans,  %  of  G DP 78 ,4 66 ,9 60 ,4 57 ,9 56 ,2 55 ,0

Total   loans,  %  yoy -­‐2 ,2 0 ,9 9 ,6 2 ,2 9 ,1 10 ,2

C orporate   loans,  %  yoy 4 ,8 7 ,9 14 ,8 5 ,1 13 ,0 12 ,1

Household   loans,  %  yoy -­‐13 ,9 -­‐13 ,1 -­‐4 ,0 -­‐6 ,6 -­‐4 ,5 2 ,3

Share  of  FX   loans   in  total   loans,  % 51 ,3 46 ,6 40 ,7 37 ,0 31 ,7 27 ,7

Total  deposits,  UAH  bn 327 ,7 414 ,2 486 ,8 566 ,3 648 ,0 736 ,0

Total  deposits,  %  of  G DP 35 ,8 38 ,3 37 ,0 40 ,4 41 ,2 41 ,5

Total  deposits,  %  yoy -­‐8 ,4 26 ,4 17 ,5 16 ,3 14 ,4 13 ,6

PI  deposits,  %  yoy -­‐1 ,9 28 ,5 13 ,1 19 ,1 14 ,1 13 ,4

Loan-­‐to-­‐deposit  ratio,  % 219 ,0 174 ,8 162 ,0 143 ,1 136 ,4 132 ,3

§ Source: National Bank of Ukraine, Raiffeisen RESEARCH

Ukraine’s banking system: Key balance sheet indicators and forecasts

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Summary

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Foreign banks are leaving Ukraine because: § Assets growth in 2012 - 7%, ROE – 3% § Absence of long-term resources § Potential of Ukrainian market didn’t come true: big, but still poor population (US$ about 4,000 per capita) § NPL ration even after 4 years after crisis is very high (about 30%)

Positive Developments § Low inflation (-0.2% in 2012) § Stable local currency (GFK: Ukrainians trust more UAH (26,5%) than € (18,5%) and RUR (1%))

Improvements in regulatory environment

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Reporting: § IFRS for all companies starting from reporting for 2013 (2012 – for banks) § New provisions policy – unification of IFRS and Basel § Differentiation of Financial Reporting (IFRS) and Statistics Reporting § Consolidated Supervision on a Group level (starting from 2014)

Deposit Guarantee Fund § Since 2012 the Fund’s authorities were significantly increased: Banks Supervision (regarding banks’ payments to the Fund) and Sanitization Functions were added § The payment calculations were improved and differentiated § The guarantee volume was enlarged (to UAH 200,000)

Taxation § From the end of 2010 the usage of financial reporting for taxation reporting was introduced § Gradual decrease of the profit tax rate of the companies from 25% to 16% § Since 2012 a tax declaration should be submitted only once a year