investor’s handbook
Investor DayBudapest, April 20, 2007
OTP Bank Investor Day, April 2007 1
Table of Contents Schedule
2
Faces of the Conference
3
Presentations
9
Vision of OTP Group – Major strategic targets and directions
9
Transformation and integration of the foreign subsidiaries
24
OTP Banking Group – International management model
33
The unique growth opportunity in CEE – Regional macroeconomic and banking market outlook
35
Hungary: Incumbent’s game focusing on customer loyalty
45
Bulgaria: Continuing the unique success story, retaining Number 1 retail position
51
Russia: Aggressive expansion in consumer finance and mortgage
56
Ukraine: Focused attack on affluent and retail lending segment
61
Romania: Become significant retail/corporate player, achieve sound profitability
66
Montenegro: Retaining Number 1 position in a fast growing and highly competitive market
71
Disclaimer
76
Practical information
77
OTP Bank Investor Day, April 2007 2
Schedule 08:00 - 09:00 Registration 09:00 - 09:10 Opening, introduction Sandor Pataki,
Head of IR, OTP Bank 09:10 - 09:20 Welcome speech Dr. Laszlo Urban,
CFO, OTP Bank 09:20 - 10:05 Vision of OTP Group – Major strategic targets and
directions Dr. Sandor Csanyi, Chairman & CEO, OTP Bank
10:05 - 10:50 Transformation and integration of the foreign subsidiaries
Dr. Laszlo Urban, CFO, OTP Bank
OTP Banking Group - International management model
Laszlo Bencsik, LIIB Secretary, OTP Bank
10:50 - 11:10 Coffee break (White Salon) 11:10 - 11:40 The unique growth opportunity in CEE – Regional
macroeconomic and banking market outlook Tamas Schenk, Head of Strategy, OTP Bank Tamas Vojnits, Head of Research, OTP Bank
11:40 - 12:15 Q & A’s 12:15 - 13:45 Lunch - buffet (Rossini Room)
OTP's strategy on the major markets (part 1) 13:45 - 14:10 Hungary: Incumbent’s game focusing on customer
loyalty Csaba Lantos, Deputy-CEO, OTP Bank
14:10 - 14:35 Bulgaria: Continuing the unique success story, retaining Number 1 retail position
Diana Miteva, Head of Retail, DSK BankDorothea Nikolova, CFO, DSK Bank
14:35 - 15:00 Russia: Aggressive expansion in consumer finance and mortgage
Laszlo Wolf, Deputy-CEO, OTP Bank
15:00 - 15:25 Ukraine: Focused attack on affluent and retail lending segment
Dmitry Zinkov, CEO, OBU
15:25 - 15:45 Q & A’s 15:45 - 16:05 Coffee break (White Salon)
OTP's strategy on the major markets (part 2) 16:05 - 16:30 Romania: Become significant retail/corporate
player, achieve sound profitability Dr. Frigyes Harshegyi, CEO, OBR
16:30 - 16:55 Montenegro: Retaining Number 1 position in a fast growing and highly competitive market
Aleksandra Popovic, Assistant General Director, CKB
16:55 - 17:10 Q & A’s 17:10 - 17:25 Follow up and closing Dr. Laszlo Urban,
CFO, OTP Bank 17:25 - 17:30 Closing, technical information Sandor Pataki,
Head of IR, OTP Bank 19:00 Coaches departs from the Boscolo NYP Hotel 19:30 - 23:00 Dinner with entertainment (Europe Conference Ship)
OTP Bank Investor Day, April 2007 3
Faces of the Conference
Dr. Sándor Csányi Chairman & CEO
OTP Bank
Dr. Sándor Csányi has served as Chairman and Chief Executive Officer of OTP Bank since 1992 and is responsible for the strategy and overall operations of the Bank. Dr. Csányi has held several other senior positions in the banking sector, including Head of Department at Hungarian Credit Bank Ltd. from 1986 to 1989 and Deputy Chief Executive Officer at K&H Bank from 1989 to 1992. Before that, he worked at the Revenue Directorate and at the Secretariat of the Hungarian Ministry of Finance and as Head of Division at the Hungarian Ministry of Food and Agriculture. Dr. Csányi gained a degree from the Financial and Accounting College in 1974 and from the Budapest University of Economics in 1980. He is a financial economist, a certified price analyst and a chartered accountant. He is a member of the board of Europay and of MOL, and holds a seat on the management committee of the Hungarian Banking Association.
Dr. István Gresa Deputy CEO
Credit Approval and Risk Management Division
OTP Bank
Dr. István Gresa has served as Deputy Chief Executive Officer of the Credit Approval and Risk Management Division of OTP Bank since March 1, 2006. Dr. Gresa graduated from the College of Finance and Accounting in 1974 and from the Budapest University of Economics in 1980, where he went on to gain a PhD in 1983. He worked at Budapest Bank from 1989 to 1993. He has been employed by OTP Bank from 1993, initially as director for Zala County and then, from 1998, as managing director of the West Transdanubian Region.
Csaba Lantos Deputy CEO
Retail Division OTP Bank
Mr. Csaba Lantos has been a member of the Board since 2001. He has served as Deputy CEO of OTP Bank since 2000. He was employed at Budapest Bank as a bond dealer from 1986. After that he was Head of Securities Trading at Creditanstalt Securities Ltd. until 1994 and Deputy CEO there until 1997. At the same time he served as managing director of Creditanstalt Securities Investment Fund Management Ltd. Between 1997 and 2000 he was the CEO and Chairman of the Board of CA IB Securities. He has been a member of the Council of the Budapest Stock Exchange since 1990 and Chairman of the Board of the Central Clearing House and Depository Ltd. (KELER) since 1993.
Dr. Antal Pongrácz CAO
Staff Division OTP Bank
Dr. Antal Pongrácz has been a member of the Board since 2002. He has served as Managing Director of OTP Bank, and has been Deputy CEO since 2001. From 1969 he worked as an analyst at ‘Petrolkémiai Vállalat’, and then as a group manager at the Revenue Directorate. From 1976 he served at various departments of the Ministry of Finance, as a manager. After that, he was deputy Chairman of the State Office for Youth and Sports. From 1988 to 1990 he served as the first Deputy CEO of OTP Bank. He was CEO and later Chairman & CEO of the European Commercial Bank Ltd. until 1994. In that year he was appointed Chairman & CEO of Szerencsejáték Rt. and then went on to serve as CEO of Hungary’s flagship airline, Malév. Dr. Pongrácz has a PhD and MSc from the Budapest University of Economics.
OTP Bank Investor Day, April 2007 4
Ákos Takáts Deputy CEO
IT and Bank Operations Division
OTP Bank
Mr. Ákos Takáts graduated at the University of Horticulture and Food Industry in 1982, then he gained a degree in engineering at the same university. He has been working in the banking sector since 1987. Between 1989 and 1993 he worked for Investbank as an administrator. In 1993 he was employed as a Deputy Head of Department by OTP Bank, from 1995 he worked as a Head of IT Development Directorate. Since October 1, 2006 he has served as Deputy CEO of OTP Bank, and the Head of IT and Logistics Division.
Dr. László Urbán
CFO Strategic and Financial
Division
Dr. László Urbán has been a Deputy CEO at the OTP Bank since January 15, 2007. He graduated from the Budapest University of Economics in 1982. He has been working in the financial sector since 1995. He worked in Washington as an employee of World Bank, later he became the Planning and Controlling Director of ABN-AMRO Hungary. Between 1998-2000, he worked as Deputy-CEO of Postabank; between 2000-2005 he was responsible for global product development at Citigroup New York; from 2005, he was Director of the National Bank of Hungary.
László Wolf Deputy CEO
Commercial Banking Division
OTP Bank
Mr. László Wolf has served as Deputy CEO of OTP Bank, with responsibility for managing the Commercial Banking Division, since 1994. Mr. Wolf gained a degree from the Budapest University of Economics in 1983. From 1983 he was employed for 8 years at the National Bank of Hungary, in the Division of International Banking Relations. From 1991 to 1993 he was Head of Treasury at BNP-KH-Dresdner Bank in Budapest, and from April 1993 to 1994 he served as Director of Treasury at OTP Bank
OTP Bank Investor Day, April 2007 5
Violina Marinova, MB Chairperson and CEO
DSK Bank
Mrs. Violina Marinova started her banking career at DSK Bank, which was then a State Savings Institution. She started as a chief accountant in one of the Bank’s branches and worked her way up to becoming a General Branch Manager, Member of the Management Board and Executive Director, Head of the Internal Control and Audit Directorate and currently a CEO and Chairperson of the Bank’s Management Board as of January 2005. Since 2005 she has been a Deputy Chair of the Bulgarian Trade Bank Association, Deputy Chair of the MB of the Bulgarian Automated Clearing House, Member of the Board of Directors of Borica (National Bank Organization for Payments Initiated by Cards) and a Chair of the Management Board of the renowned Atanas Burov Foundation. Since 2002. Ms. Marinova has also been on the Board of Trustees of the National Music Theatre. In 2001 she won the Banker of the Year Award of Atanas Burov Foundation, in 2005 she was awarded the Andras Fay Award of OTP Bank and in 2006 became Banker of the Year in Bulgaria 2006 of Finance Central Europe magazine.
Diana Miteva, Executive Director and
member of the MB Retail Division
DSK Bank
Ms. Diana Miteva has served as Executive Director of DSK Bank since 2003 initially in charge of the Corporate Banking Division and presently of the Retail Banking Division. Prior to that from 1992 to 2003 she worked at several other banks in Sofia, Bulgaria (Xiosbank as Head of Treasury Back Office, ING – Sofia branch as a Financial Controller and member of Management committee; and Demirbank – Bulgaria, where she held the position of an Executive Director and member of the Management Board.) Ms. Miteva has a Masters degree in Macroeconomics from the University of National and World Economy, Sofia. She has obtained a number of professional training qualifications by well known financial sector organizations from Great Britain, the Netherlands, Turkey and the Ministry of Finance of Luxembourg. As of 2004 Ms. Miteva has been a member of the Supervisory Board of DSK Asset Management and since 2005 she is also a member of the Board of Directors (currently Supervisory Board) of DSK Leasing and DSK Auto Leasing.
Dorothea Nikolova, Executive Director and
member of the MB Finance and Planning Division
DSK Bank
Ms. Dorothea Nikolova started working for DSK Bank in November 2003 as Head of the Planning and Controlling department. In December 2005 she became a Procurator of the Bank and Head of the Finance and Planning Division. In January 2007 she became an Executive Director of DSK Bank and member of the Bank’s Management Board. Previously, from 2000 to 2003, Ms. Nikolova had worked for Citibank N.A. Sofia Branch as a Chief Financial Officer and member of the Management Committee of the Branch. From 1993 to 2000 she also worked for the audit practice of PricewaterhouseCoopers at the Bulgarian office and at the Banking and capital markets division in London. She graduated the University of National and World Economy in Sofia, major in Finance and Banking. In June 1997 Ms. Nikolova obtained ACCA qualification, among the first three qualified auditors in Bulgaria. During her work as a CFO she participated in the economic policy committee of the Association of Commercial Banks in Bulgaria and in the Bulgarian International Business Association. Since 2005 Ms. Nikolova has been involved as management member of a few companies within the group.
Damir Odak, CEO
OTP banka Hrvatska
Mr. Damir Odak has been CEO of OTP banka Hrovatska since 2003. Prior to this he worked for Zagrebačka banka as Division Director for corporate banking between 1997-2000 and as Member of Board between 2000-2003. Before this, he managed the establishment and expansion of Trgovačka banka as CEO between 1990 and 1997. He graduated in Economics from University of Zagreb in 1987, after that he worked as research fellow in Zagreb Economic Institute until 1989
OTP Bank Investor Day, April 2007 6
Ernő Kelecsényi, CEO
OTP Banka Slovensko
Mr. Ernő Kelecsényi has served as CEO of OTP Banka Slovensko since 2003. He started his career in 1978 in a branch office of OTP Bank. He was promoted in 1988 to senior comptroller and became head of a regional business unit. Between 2000 and 2002 he held the position of Director of the Corporate Division at OTP Rt headquarters. In 2002 he was appointed Deputy Chief Executive Officer of OTP Banka Slovensko. Mr. Kelecsényi has a Masters degree in Economics from the University of Economics, Budapest (1984) and qualification from International Course for Bank Managers (1993). He achieved further professional experience at Republic National Bank of New York and San Paolo di Torino.
Martin Kryl Member of the Board of
Directors and Deputy CEO Retail Banking Division OTP Banka Slovensko
Mr. Martin Kryl is a graduate in Law on the Charles University at Prague. His career in banking started in Zivnostenska banka in 1991, where he worked as Director of Capital Markets and later as Managing Director of Private and Personal Banking. In 2001, he became a Member of the Board of Zivnostenska banka responsible for Retail banking. In 2004 he left to consulting business and joined Deloitte’s Consulting practice to lead its FSI division in Prague. Since July 2006, Martin Kryl is Head of Retail banking at OTP Banka Slovensko.
Dr. Frigyes Hárshegyi, CEO
OTP Bank Romania
Dr. Frigyes Hárshegyi has served as CEO of OTP Bank Romania since 2005. Prior to this, he had several positions in different banks and in some other companies. He worked for the National Bank of Hungary (NBH) and for International Investment Bank (Moscow) as legal adviser between 1971 and 1979. Then he was promoted to Managing Director of the International Department in International Investment Bank, in 1982 he became Deputy General Manager for European Banking Relations in NBH. Between 1985 and 1989 he led the Representative Office of the NBH in Frankfurt (Germany). From 1990 to 1997 he was Deputy President of the NBH responsible for the country’s foreign debt and foreign exchange reserves management. After this he held several positions in the members of CIB Group (owned by Banca Intesa), and in some other industry companies (Phylaxia Pharma, East European Recycling And Environment Company). He has a doctorate in low from the University of Szeged (1974).
Dmitry Zinkov,
Chairman of the Board OTP Bank (Ukraine)
Mr. Dmitry Zinkov has served as Chairman of the Board of OTP Bank since June, 2006 and is responsible for the strategy and overall operations of the Bank. Before this Mr. Zinkov has been working at OTP Bank (previous RBUA) for 7 years, from September, 1999 with responsibility for managing the Corporate Clients and Loans Department. From 2001 he was in charge in Sales Network Management Division. In November, 2005 Mr. Zinkov was advanced to the position of OTP Bank Member of the Board. Dmytro Zinkov has more than 12 years of working experience in banking institutions. He began his banking career at JSCB «INKO» in 1993. After that, from 1996 to 1999, has held several other senior positions in the banking sector, including Vice Chairman of JSCB «Commercial and industrial bank» and «Ukrkharchprombank» in Kyiv. Dmytro Zinkov graduated from Shevchenko Kyiv State University, in 1993 he gained honours degree in Economics as «Economist and teacher of economic disciplines».
OTP Bank Investor Day, April 2007 7
Dr. Károly Szász,
CEO Niska banka
Dr. Károly Szász has been Director of Niska banka since March 2006. In October 2006 he also became President of the Executive Board. Prior to that, he held different positions in Hungarian banks: between 1984 and 1995 he served in CIB Bank mostly engaged in corporate finance, after this he became Head of Corporate Banking Division and member of the Management Committee in MKB Bank. He held the same position once again in CIB Bank between 1996 and 1997. Then he was General Manager of Hypo-Bank Hungaria (1998-99) and of Konzumbank (1999-2000). Between 2000-2004 he led the Hungarian Financial Supervisory Authority. He has served OTP Bank since 2004. He has a doctorate in economics from the Budapest University of Economics (1986).
Milka Ljumovic, General Director
Crnogorska comercijalna banka
Mrs. Milka Ljumovic has been General Director of the Bank since its establishment in January, 1997. Mrs. Ljumovic has a degree in Economics from the Faculty of Economics in Podgorica. She has 40 years of experience in working for various financial institutions, such as IBT Investment Bank, Titogradska banka, Montex banka. Between 1990 and 1996 she served as the Deputy Minister of Finance of the Government of Republic of Montenegro. Mrs. Ljumovic also held positions in the management boards of Telecom of Montenegro and CDA, and is presently a member of the Management Board of CKB.
Aleksandra Popovic, Assistant General Director Crnogorska comercijalna
banka
Mrs. Aleksandra Popovic was appointed as Assistant General Director in June, 2003 after having served two years as the Director of Department for International Relations and Marketing and the Executive Director for International Business of CKB. In the four and a half years prior to that she assisted CKB as a permanent consultant. Mrs. Popovic has a degree in Economics from the Faculty of Economics in Podgorica. Before joining CKB she worked in Telecom of Montenegro on projects of strategic importance for Montenegrin telecommunications. Mrs. Popovic has also experience in the areas of media and broadcasting, advertising, marketing and trade. She is a member of the Management Board of Montenegro Business Alliance.
Bose Tatar, Deputy General Director Crnogorska comercijalna
banka
Mrs. Bose Tatar has been Deputy General Director since the establishment of Crnogorska komercijalna banka AD Podgorica in January, 1997. Mrs. Tatar has a degree in Economics from the Faculty of Economics in Podgorica. She has more than 25 years of experience in working for various financial institutions (Investiciona banka, Titogradska banka, Montenegrobanka, Montex banka, Credit & Savings Organization “Mont”) and as Investment Manager in the Electric Power Company of Montenegro (EPCG).
OTP Bank Investor Day, April 2007 8
Tamás Schenk
Director Strategy and Economic Research Directorate
OTP Bank
Mr. Tamás Schenk has been leading the strategy team of ~15 analysts at OTP Bank for three years. The directorate’s main responsibility is to synthesize OTP Group’s medium term strategic plan. In order to evaluate ideas proposed by different divisions and also to develop their own recommendations, the strategy team’s activity covers macroeconomic research, market sizing, competition analysis and studies on customer behaviour. Prior to joining OTP, Mr. Shenk worked as a consultant at McKinsey&Company and as an equity analyst at Concorde Securities. Mr. Schenk holds Master’s degrees in Economics from the Budapest University of Economic Sciences, Hungary and from CentER for Economic Research at Tilburg University, the Netherlands.
Tamás Vojnits
Director Research Department
OTP Bank
Mr. Tamás Vojnits finished his studies at the Budapest University of Economics in 1992. He started working as research assistant in Inter-Europa Bank. In 1994 Mr. Vojnits started postgraduate PhD course in economics, and his major field of interest has been monetary policy. From 1997 till 1999 he worked as economist for Rabobank International. Mr. Vojnits joined OTP Group in 1999. In the first two years he was the chief economist of OTP Securities, an investment bank. In 2001, he together with his team joined OTP Bank and became the director of the research department. Besides covering economic and financial trends, his team has a key role in working out the strategy and business policy of OTP Bank.
László Bencsik
Managing Director Bank Operations Directorate
OTP Bank
Mr. László Bencsik graduated from the Budapest University of Economics in 1999 and he also gained an MBA degree on INSEAD. Between 1996 and 1999 he was employed at Strategic Services branch of Andersen Consulting, and from 2000 to 2003 he worked as a consultant at McKinsey &Company. Since Autumn 2003 he has run the planning and controlling field of OTP Bank as a Managing Director.
Sándor Pataki
Director Investor Relations
OTP Bank
Mr. Sándor Pataki graduated from the Institute of International Relations in Moscow, he started his career at the foreign service in 1985 and worked in China. In 1992 he joined the National Bank of Hungary’s International Capital Markets department and was responsible for sovereign borrowing and rating. From 2002 he became managing director at FBH Land Credit & Mortgage Bank where he was running the liability management and IR. In 2005 he joined OTP Bank as Head of Investor Relations.
Investor Day, April 2007
Vision of OTP Group – Major Strategic Targets and Direction
Dr. Sándor Csányi, Chairman and CEO
Investor Day, April 2007
2
828774
621
405301
2361841481221167357
0%
1000%
2000%
3000%
4000%
5000%
6000%
7000%
8000%
1995* 1996* 1997* 1998 1999 2000 2001 2002 2003 2004 2005 2006
OTP has successfully closed a period of substantial value creation as an incumbent Hungarian player . . .
Share price performance**
OTP Group pre-tax profit, EUR million
100%
* OTP non consolidated** 1995. 08. 11.=100%
BUX
OTP Bank, share price
“Over the past decade, OTP Bank’s transformation was probably the greatest business success story in Eastern Europe” (Euromoney, 2005)
Investor Day, April 2007
3
828774
621
405301
236184148
7357
0%
1000%
2000%
3000%
4000%
5000%
6000%
7000%
8000%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
. . . and is now entering a new phase as a regional attacker bank
Share price perfor-mance**
* OTP non consolidated** 1995. 08. 11.=100%
“Over the past decade, OTP Bank’s transformation was probably the greatest business success story in Eastern Europe” (Euromoney, 2005)
999
2007E
~2,000
2010E
OTP Group pre-tax profit, EUR millions
OTP Bank
BUX
116122
Investor Day, April 2007
4
Cornerstones of OTP Group level strategy
Targets Build a diversified regional financial group with EUR 2 billionprofits by 2010
Reasons To reap unparalleled growth opportunities leveraging ourunique understanding of the Central Eastern European markets
Tools By implementing customized strategies with strong localteams and institutionalized group-level best practice sharing
Investor Day, April 2007
5
By 2010 OTP Group will transform into a diversified regional financial group . . .
Currently #1 position*
* In Bulgaria before HVB, Unicredito merger
Targeted positions of OTP Group for 2010
CEE region as defined by OTP Group
Targets
Reasons
Tools
Russia
UkraineSlovakia
Hungary
CroatiaRomania
SerbiaBulgaria
Montenegro
Top 10 player
Top 10 player in Retail lending, top 5 in POS, credit card
Top 5 bank, top 3 in retail lending, mortgage
#1 player
Top 5 on mar-ket, strength in wholesale
Stable top 5 player
#1 player
Top 5 in retail lending
#1 player
Investor Day, April 2007
6
Targets
Reasons
Tools
. . . offering a full-scale of financial services via multiple channels in every country
* Plan, EoY 2007
260 million potential customers in Central-
Eastern Europe
Best in class retail banking
productsInsurance
Brokerage and asset
management
Targeted packages for small-medium
enterprises
Full spectrum of wholesale
banking services
100+ merchant partners
Remote channels (~4 million users)
~1,900 branches
7,500 + agents*
Investor Day, April 2007
7
0.3
0.20.2
0.3
2.0
1.0
Targets
Reasons
Tools
OTP Group will deliver EUR 2 billion pre-tax profit by 2010 . . .
Hungary Russia Ukraine Bulgaria Rest of OTP Group Countries*
Total Potential major acquisitions
* Croatia, Montenegro, Romania, Serbia, Slovakia, plus revenue generated from reinvested capital
OTP Group consolidated pre-tax profit
2010, EUR billions
Including reinvestment of capital generated
Investor Day, April 2007
8
Targets
Reasons
Tools
. . . building a strong platform, enabling >20% yearly long-term growth
2.0
0.8
2006
1.0
2007 2010
21%
CAGR: 27%
20–30%
Further exploitation of geographic and sectorial opportunities
OTP Group consolidated pre-tax profit
(EUR billions)
Investor Day, April 2007
9
Targets
Reasons
Tools
2000 2005 Regional profit pool 2005
Regional revenues
……CAGR 2000–2005 Revenue CAGR below 7%
Revenue CAGR 7–15%
Revenue CAGR above 15%
Revenue CAGR below 0%
Revenue CAGR below 7%
Revenue CAGR 7–15%
Revenue CAGR above 15%
Revenue CAGR below 0%
Central-Eastern Europe is the fastest growing banking market in the world . . .
675
1,036
9.0%
9878
4.7%
232 222
-0.9%
228143
9.8%
5125
15.6%
2217
5.0%
North America
Western Europe
Middle East
Japan
Asia
Latin America Australia
Africa
293293
1919
158158
3939
6767
2424
Global revenue poolUSD billions
1,6662,438
7.9%
33
5525
17.1%
1313
3213
19.3%
CE Europe
88 2.514.1
41.0%
Russia33
627627
HEAT MAPS: 2000–2005 REVENUES AFTER RISK COST; 2005 AFTER-TAX PROFITS; REVENUE CAGR 2000–2005USD billions, percent
455
681
8.4%
Source:McKinsey; OTP
Investor Day, April 2007
10
Targets
Reasons
Tools
. . . driven by strong, long-term fundamental trends
1.63.23.5
4.65.9
Eastern Europe
Middle East and Africa
Asia North America
Western Europe
Strong macro-economic conditions
Penetration catch-up
Sustainable profitability
43%
Eastern Europe
102%
Middle East and Africa
230%
Asia
CAGR of real GDP growth, 2001–2007, percent
PFA/Disposable income, 2006 PFL/Disposable income, 2006
16%
Eastern Europe
22%
Middle East and Africa
67%
Asia
• Moderate level of margin erosion inevitable across the whole market due to competitive pressure
• Important factors counterbalancing margin decline• Product development increasing fee income potential• Limited further efficiency gains• Sophisticated risk management will decrease risk costs
• Unique CEE story due to EU accession
• Foreign spreads 20–100 bpin OTP countries
Convergencepotential
Investor Day, April 2007
11
Targets
Reasons
Tools
These markets follow a natural development path with alternating focus . . .
Typical banking development path in East Europe
C/A battle1Consumer loan battle2 Mortgage/
SME battle3 Relationship battle4
Russia – Moscow
Russia other
Ukraine
Serbia
Albania
Bulgaria
Romania
Poland
Slovakia
Croatia
OTP Bank, Hungary
Czech RepublicLithuania
Estonia
Latvia
Slovenia
• C/A based products/services (retail, corporate)
• Network streamlining
• Fundamental IT and Bank operations
• Full product range (including basic mortgage)
• Consumer loans
• Back-Office centralization
• Private banking/ retail brokerage
• Electronic channels
• Sales efficiency, cross-selling
• Branch network management
• Agent networks
• Full mortgage portfolio
• Loyalty building
• Full investment product range
• Image/brand management
• Focused segmentation
Focus
Investor Day, April 2007
12
Targets
Reasons
Tools
. . . all of which OTP Hungary has successfully tackled, creating a unique, shareable CEEexperience
* In 2006 without the effects of ICES
627
333
12957
1995 1998 2003 2006*
C/I 73% 66% 55% 46%
ROAE 19% 35% 29% 26%
OTP Banknon-consolidated pre-tax profitEUR millions
C/A battle1
Consumer loan battle2
Mortgage/ SME battle3
Relation-ship battle4
Investor Day, April 2007
13
Targets
Reasons
Tools
OTP has already proven the value of hard-won local experience
* 2003–2006
0%
20%
40%
60%
80%
100%
120%
40%45%50%55%60%65%70%
2003
2006
Serbia
3-year growth CAGR of total assets in EUR*
Efficiency (C/I, 2006E)
24
2003
83
2006
After-tax profit of DSKEUR millions
3.5x
• Top management overhaul• Sales force effectiveness
campaign • Risk management system
redesign• Back-Office centralization• Consecutive waves of
product development• Data warehouse and CRM
system development
Major transformation effort
With >100 OTP Bank personnel and strong external
consultant support
Investor Day, April 2007
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Targets
Reasons
Tools
Optimal timing: Hungarian market conditions provide a strong base for regional group building
. . . driven by 4 main factorsDespite macro slowdown and high penetration, strong growth expected . . .
~10%
363320
275
2004 2005 2006
~400
2007
16%13%
After-tax profit of commercial banks in HungaryHUF billions
• Natural wealth accumulation resistant to short-term austerity measures
• Enormous catch-up both on PFAand PFL sides
• Stabilization of economy should positively impact banking business
• Strong counter-cyclical trend: higher interest rate environment keeping margins higher, counterbalancing lower volumes
Investor Day, April 2007
15
Targets
Reasons
Tools
Execution is built on 3 critical cornerstones
Customized strategies
Strong local management teams
Flexible best practice sharing
Flawless execution
OTP Banking Group – Major Strategic Targets and Direction
27
Strong, highly motivated local management teams ensure success
• 80% from local countries
• Average experience of CEOs 10+ years
• Ambitious individuals selected
Highly experiencedlocal leadership
• Profit-sharing program rewarding over-achievement of targets
• Group-wide option program
Performance-basedincentives ensuringhigh motivation
• Chairmen of Supervisory Boards/Boards of Directors from senior management of OTP Bank Hungary
• Dedicated staff to support Chairmen
Secure ownership control
OTP is the only banking group in CEE whose topmanagement team holds decades of local experience
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
OTP Banking Group – Major Strategic Targets and Direction
27
Targets
Reasons
Tools
OTP developed a flexible group management model
Local leadership controlled by governing bodies
Group-wide experience sharing in business areas
Coordination at Group Committee
Direct incentives
• The primary responsibility, accountability and authority lies with local top management familiar with local circumstances, with formal control through ownership structure and functional control (risk management, controlling, compliance, internal audit)
• In business areas, key task of OTP retail/corporate experts is to facilitate sharing of best practices and ensure quality of operations based primarily on informal cooperation and on working together on selected key issues
• Issue resolution through LIIB (Subsidiary Integration and Management Committee) for subsidiaries related topics supported by ALCO, IT and CAPEX committees
• Chairman of boards translate decisions directly to subsidiaries
• OTP business management, experts and functional management directly responsible for subsidiary impact
• Subsidiary top management involved in profit-sharing program
Investor Day, April 2007
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Targets
Reasons
Tools
OTP group members follow customized strategies based on local position and opportunities
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ateg
ic
po
siti
on
ing
Market dynamics
Focus on limited customer segment - product/channel portfolio; price aggressively
Focus on sales -product/channel development; increase service level in existing channels
Defend market share/high ROE with cross-sell, defensive pricing, process streamlining
Investor Day, April 2007
17
Targets
Reasons
Tools
Hungary: Solidify client relationships to maintain market pre-eminence
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
Key actions for 2007
• Launch credit protection program for retail clients in trouble
• Upgrade investment product portfolio/sales effectiveness/advisory capability
• Expand corporate sales effectiveness program
• Launch treasury sales program
2007–2010 strategic objectives
• Retain solid overall market leadership with ~20% ROE
– Reinforce retail dominance through improved customer experience and already efficient processes
– Strengthen position in wholesale through sales intensification, revenue management
Pre-tax profitEUR billion
0.71
2006
0.99
2010E
CAGR: 9%
Investor Day, April 2007
18
Targets
Reasons
Tools
Russia: Aggressively expand in consumer finance, mortgage
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
Key actions for 2007
• Run sales trainings, implement sales effectiveness toolkit
• Open ~40 branches, expand agent network
• Launch mortgage and combined products• Review and upgrade retail/corporate rating
system
2007–2010 strategic objectives
• Turn into a leading retail mortgage and consumer finance player through expansion and efficiency gains
• Expand in mid-corporate segment through state-of-the-art loan process, product development and sales network
Pre-tax profitEUR billion
0.34
0.02
2006 2010E
CAGR: 98%
Investor Day, April 2007
19
Targets
Reasons
Tools
Ukraine: Attack in affluent segment
2007–2010 strategic objectives
• Develop country-wide branch, partner and agent networks
• Enlarge affluent product/service range (e-banking, easy-to-use C/A services)
• Grow rapidly in SME/local corporatesthrough comprehensive product/service offering
Key actions for 2007
• Build 76 new branches and a nationwide network of agents
• Develop investment and Private Banking value proposition
• Streamline corporate credit process
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
Pre-tax profitEUR billion
0.25
0.07
2006 2010E
CAGR: 39%
Investor Day, April 2007
20
Targets
Reasons
Tools
Bulgaria: Continue unique success story, maintain no. 1 position in retail
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
2007–2010 strategic objectives
• Maintain market leadership in retail through further improved service/sales
• Achieve top 3 position in wholesale through full product portfolio, streamlined credit process
Key actions for 2007
• Increase sales effectiveness through training and motivation
• Introduce CRM-based campaign management
• Streamline wholesale credit process
Pre-tax profitEUR billion
0.21
0.10
2006 2010E
CAGR: 22%
Investor Day, April 2007
21
Targets
Reasons
Tools
Romania: Become significant retail/SME player, achieve sound profitability
2007–2010 strategic objectives
• Step-up sales focus in retail, concentrate on mass/upper mass segments
• Focus corporate banking strategy on micro, small, medium corporate and project finance
• Continue with cost-effective network development, centralize for economies of scale
Key actions for 2007• Enhance consumer loan cross-sell • Launch innovative retail products (e.g.
mortgages, deposits), develop private banking
• Expand sales network: new branch models; countrywide merchant acquisition, agents/partners
• Step-up corporate sales capabilities, set up project finance
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
Pre-tax profitEUR million
2010E
CAGR: n.a.
2006
-0.01
0.07
Investor Day, April 2007
22
Targets
Reasons
Tools
Croatia: Focused champion in mass retail, SME
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
2007–2010 strategic objectives• Strengthen retail position through product
upgrade
• Modernize branch network, broaden e-channels
• Ramp-up operational efficiency in branch network and administration
• Expand in SMEs through focused service/product offer
Key actions for 2007
• Develop specific products for Retail, SMEsegments (bundles, cards, cash-pooling, etc.)
• Develop/renovate branch network and establish outbound call-center
• Upgrade domestic payment system
• Improve loan process
Pre-tax profitEUR million
33
17
2006 2010E
CAGR: 19%
Investor Day, April 2007
23
Targets
Reasons
Tools
Slovakia: Concentrate on profitable core
2007–2010 strategic objectives
• Increase retail market share through improved sales force effectiveness
• Further strengthen position in mortgage, develop consumer finance base
• Exploit profitable SME subsegments, secure top position in municipalities
• Further rationalize operations
Key actions for 2007
• Launch sales trainings, outbound call center
• Optimize credit risk management criteria for retail lending, fine-tune housing loans process
• Launch credit card• Develop wholesale value proposition for
sub-segments with potential
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
Pre-tax profitEUR million
27
6
2006 2010E
CAGR: 46%
Investor Day, April 2007
24
Targets
Reasons
Tools
Serbia: Focused expansion after full integration
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
2007–2010 strategic objectives
• Close smooth/successful merger process
• Emerge as a key retail/SME player through upgraded product offering, modernized/efficient sales channels
Key actions for 2007
• Finish legal/technical merger steps
• Launch unified retail/SME product offer (C/A, consumer finance, mortgage, cards)
• Renovate 40 branches, upgrade agent network, launch e-channels
Pre-tax profit targetsEUR million
62
24
2006 2010E
CAGR: 27%
Investor Day, April 2007
25
Targets
Reasons
Tools
Montenegro: Sustained market dominance by improving sales and offering superb service
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
2007–2010 strategic objectives
• Exploit incumbent position through
– sales intensification
– product innovation
– leveraging OTP and DSK know-how
Key actions for 2007
• Conduct nationwide sales training
• Introduce retail home equity loans and SME mortgages
• Launch project finance to capture EU funding opportunity
• Develop innovative e-banking services
Pre-tax profit targetsEUR million
17
4
2006 2010E
CAGR: 40%
Investor Day, April 2007
26
Targets
Reasons
Tools
Strong, highly motivated local management teams ensure success
• 80% from local countries
• Average experience of CEOs 10+ years
• Ambitious individuals
• Hungarians mainly to Risk and CFO positions
Highly experiencedlocal leadership
• Profit-sharing program rewarding over-achievement of targets
• Group-wide stock option plan
Performance-basedincentives ensuringhigh motivation
• Chairmen of Supervisory Boards/Boards of Directors from senior management of OTP Bank Hungary
• Dedicated staff to support Chairmen
Secure ownership control
OTP is the only banking group in CEE whose topmanagement team holds decades of successful local experience
Investor Day, April 2007
27
Targets
Reasons
Tools
OTP developed a flexible group management model
Local leadership controlled by governing bodies
Group-wide experience sharing in business areas
Coordination at Group Committee
Direct incentives
• The primary responsibility, accountability and authority lie with local top management familiar with local circumstances, with formal control through ownership structure and functional control (risk management, controlling, compliance, internal audit)
• In business areas, key task of OTP retail/corporate experts is to facilitate sharing of best practices and ensure quality of operations based primarily on informal cooperation and on working together on selected key issues
• Issue resolution through LIIB (Subsidiary Integration and Management Committee) for subsidiaries related topics supported by ALCO, IT and CAPEX committees
• Chairman of boards translate decisions directly to subsidiaries
• OTP business management, experts and functional management directly responsible for subsidiary impact
• Subsidiary top management involved in profit-sharing program
Investor Day, April 2007
28
Targets
Reasons
Tools
Strong, cross-country best practice sharing is already part of OTP Group’s everyday life
Selected topics of know-how transfer among OTP Group members
EXAMPLES
CEE region as defined by OTP Group
Russia
Ukraine
Slovakia
Hungary
Croatia
RomaniaSerbia
BulgariaMontenegro
• IT development methodology
• Sales force effectiveness
• Branch ope-ration
• FX mortgage product design
• POS loan product development
• Agent network build-out
• Branch build-out• Mortgage
development• Sales finance product
development• Cross-sell
effectiveness• Investment products
development• CRM system design• IT procurement
Hungary
• Branch build-out
• Cross-sell effec-tiveness
Investor Day, April 2007
29
Targets
Reasons
Tools
By following this ambitious strategy, OTP Bank can be among Top 20–25 European players by 2010
10
2006
European league of banking by market capitalization – Estimated
Market capitalization of OTP BankEUR billions
EU 2007 Jan1.2.3.4.5.6.7.8.9.
10.11.12.1314151617181920212223242526272829303132333435363738394041424344454647
48
HSBCUBS 'R'ROYAL BANK OF SCTL.GP.BNC.SANTANDER CTL.HISP.BNP PARIBASING GROEP CERTS.BARCLAYSUNICREDITO ITALIANOBBV ARGENTARIACREDIT SUISSE 'R'HBOSSOCIETE GENERALEDEUTSCHE BANKSBERBANK OF RUSSIALLOYDS TSB GROUPCREDIT AGRICOLEABN AMRO HOLDINGGENERALIFORTIS (BRU)INTESA SANPAOLOKBC GROUPEAVIVANORDEA BANKDEXIADANSKE BANKCOUNTRYWIDE FINL.ALLIED IRISH BANKSCOMMERZBANKCAPITALIAERSTE BANKBANK OF IRELANDBANCO POPULAR ESPANOLNATIONAL BK.OF GREECERAIFFEISEN INTL.BK.HLDG.SEB 'A'MEDIOBANCASVENSKA HANDBKN. 'A'DNB NORSWEDBANK 'A'PKO BANKBANCA MONTE DEI PASCHIBANCO ESPANOL DE CREDITOEFG EUROBANK ERGASIASDEUTSCHE POSTBANKAKBANKBCP 'R'PEKAO
OTP Group
989490787571706665646054504848474343653532312424202019191917
17
16
17
17
151515141212121111101010
10
~25+
2010
Without major acquisition
P/EEPS (EUR)
~13X~3 ~6
~16X
Successfulimplementationof regionalstrategy andstabile long-term growthpotential willsupportsubstantial valuation
EU 2010 DecABCDE…...……………...……………...
OTP Group
1.2.3.4.5.6.7.8.9.
10.11.12.13141516171819
20–25
……
25
…
……
…
……
…
…
…
…
……
…
……
160
Investor Day, April 2007
30
Targets
Reasons
Tools
This model will enable the further expansion of OTP Group
Greenfield building of new business, leveraging
existing strengths
Targeted banking acquisition in markets with significant upside
Acquisition into new businesses
Transformation and Integration of the Foreign Subsidiaries
Investor Day, April 2007
Dr. László Urbán, CFO
2
Investor Day, April 2007
First investor day in OTP Group history marks the beginning of a new era
• Exclusive focus on Hungary• Absolute dominance in Hungary
through product/channel and sales development
• Market share 23.4% (2001)• Profit growth >300%
(1995–2001)• C/I: 60.4% (2001)
• Acquisitions in Slovakia, Bulgaria, Romania, Croatia, Serbia, Russia, Montenegro, Ukraine
• DSK Bank first major international success: 340% profit growth 2003–2006
• Focus still on Hungary: internatio-nal businesses contribute 14% of profit (2006)
Fundamental shift in business model:• 50% of 2010 profit to come from
foreign group members• Tailor-made strategy developed
for each foreign subsidiary• New group management model
introduced1995
2001
2007
Solidifying Hungarian dominance
Shift towards high growth CEE markets
Intensive exploitation of international opportunities
OTP to be operated as a diversified, Central-European
financial group
3
Investor Day, April 2007
Well-defined targets, solid capital/risk position, appropriate CAPEX and strong incentives are the basis of ambitious 2010 plans
Financialtargets
OTP Group will reach EUR 2 billion pre-tax profit in 2010 with • A focused strategy resulting in 25%+ ROE, 48% C/I• Capital adequacy 0.5–1% above regulatory requirement; retained earnings
invested in 20%+ ROE businesses
Riskmanagement
• Only moderate increase in risk profile due to 2006 expansion (non-performing ratio: 4.5% of loan portfolio)
• Expected to remain steady until 2010 (1.2–1.4% risk cost per average loan between 2007–2010)
CAPEX(branch, IT)
• ~650 new OTP Group branches abroad until 2010, bringing total to ~1,900• Continued investments in IT (EUR 60 million abroad in 2007)
Incentives A new profit-sharing scheme will incentivize OTP Bank and subsidiary managers tosurpass stretched subsidiary targets
4
Investor Day, April 2007
OTP Bank aims for ~3.7% market share in Central-Eastern Europe (outside Hungary) by 2010
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
Russia
Ukraine
Slovakia
Hungary
Croatia*
Romania
Serbia*
BulgariaMontenegro*
2010 market size (banking assets), OTP Group targetmarket share (EUR billions, percent)
OTP Groupmarket share inCentral-Eastern
Europe, outside Hungary
2010 market size
OTP Group targetmarket share
2.1
7.2
21.3
5.5
4.2
Source: McKinsey; OTP Bank
X
1,704
238
5.3
155
26.1
156
84
4.8
84
34
675 37.1
3.72.5
20102006
5
Investor Day, April 2007
In focus: Consumer finance in Russia, Ukraine, Bulgaria; mortgage in Ukraine; deposits in Bulgaria, Russia; wholesale in Ukraine
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
Potential scale of each OTP group member’s aspiration by main products,
revenues after risk cost, 2010
Multi EUR 100mn
EUR 100mn
Multi EUR 10mn
EUR 1mn
EUR 10mn
Consumer finance Mortgage
Transaction and Deposits
Investment and Insurance Wholesale
Russia
Bulgaria
Croatia
Slovakia
Serbia n/a
Romania
* Sales and trading asset management
Ukraine
Montenegro
Other wholesale*
n/a
n/a
6
Investor Day, April 2007
To reach EUR 2 billion profit by 2010, OTP Group will grow its balance sheet to ~ EUR 65 billion, targeting 25%+ ROE
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
P&L(EUR billions)
Key performanceIndicators (percent)
2006
56.4
28.0
3.0
0.7
2.9
48.1
2010
26.1
2.8
1.4
3.9
2006
1.8
1.2
0.8
0.1
1.7
0.4
2.0
0.7
2010
4.0
2.4*
2.0*
0.6
3.4
1.0*
4.5
1.6*
Net interestand fee income
Risk cost
Revenue afterrisk
Other revenue
Total revenueafter risk cost
Non-interestexpense
Pre-tax profit
After-tax profit
Total customerloans
Provision onloan losses
Tangible assets
Financial andother assets
Total assets
Total customerdeposits
Other liabilities
17.8
16.8
-0.5
0.7
10.2
28.3
4.1
28.3
7.3
2006
49.0
31.2
-1.9
1.2
16.6
64.9
8.9
64.9
24.8
2010
Balance sheet(EUR billions)
Equity and sub-ordinated loan
Total liabilities
C/I
After-tax ROE
After tax ROA
Risk cost peraverage loan
Provision/loans
OTP Group, consolidated
2007
2.3
1.7
1.0
0.2
2.1
0.6
2.7
0.8
23.0
19.4
-0.8
1.9
11.4
35.5
4.8
35.5
11.3
2007 2007
57.1
24.8
2.6
1.2
3.5
* Including profit from reinvestment of retained earnings
7
Investor Day, April 2007
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
OTP Group will rely on a mixture of funding sources, probably dominated by EUR bonds
Preferences in funding (size of circles reflects realistically available size of funding)
Based on availability, cost and risk impact, a clear priorizationof funding sources can be defined
High
Low
All-in Cost
HighLow
Risk and Difficulty in feasibility*
Local (Russia) securiti-zation
Group-level securiti-zation
Local bond
HUF bond
WEU partner-
shipOTP
syndication
Local IB
CEE acquisi-
tion
WEU acquisi-
tion
1st choice
• 3rd choice
OTP IB
EUR bond
2nd choice
OJBHUFCMB
OJBinternatio-nal CMB
* Liquidity risk, maturity mismatch, counterparty risk, business risk (in case of acquisition)
8
Investor Day, April 2007
9.9
9.9
2006
0.3
9.4
9.7
2010
OTP Group to maintain capital adequacy levels 0.5–1% above regulatory requirement
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
Capital adequacy ratio(percent)
4.3
5.6
9.9
2006
3.9
5.6
9.5
2010
2.9
19.4
22.3*
2006
10.0
10.0
2010
12.2
9.7
2.51.0
11.3
12.3
2006 2010
1.1
10.9
12.0
2006
10.8
10.8
2010
11.0
7.2
3.81.4
9.4
10.8
2006 2010
5.1
7.1
12.2
2006
0.2
11.6
11.8
2010
2.1
10.9
12.9
2006
12.5
12.5
2010
7.9
21.4
29.3
2010
0.3
31.1
31.4
2006
Tier 2
Tier 1
Regulatory capital adequacy ratio
OTP Bank**,Hungary
OBS, Slovakia
OBR, Romania
ISB, Russia
CJSC OTP, Ukraine
OBH, Croatia
DSK, Bulgaria
OTP, Serbia***
CKB, Montenegro
* Until 2006 December, local regulation maximized foreign denominated assets at 300% of capital, which necessitated artificially high capital level at OBR. Regulatory requirement 12% in 2006.** Tier I ratio calculated by subtracting Deductions proportionately from Tier I and Tier II
*** Reflects capital structure of Kulska and Niska Banka; regulatory requirement on capital injection due to hyperinflation results in high capital levels. Current reserving requirements on liabilities make subordinated debt a preferred source of funding, increasing Tier 2 proportion by 2010
8%10%
12%
12%
9
Investor Day, April 2007
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
Additional capital to be investedEUR millions
~1.5 billion additional capital (including EUR 450–500 million retained earnings) to be invested at ~15% medium term ROIC
OTP dividend practice
30% of OTP Bank after-tax profit (HAS) used to be distributed
ESTIMATE1402007
1602008
1802009
4802007–2009 total
800Additional subordinated capital*
265Additional capitalrelease
~1500Total
Additional investments including retained earnings to boost OTP Group value creation
• Unique, “once in a lifetime”growth environment in CEEmarkets
• OTP to keep open the option of pursuing additional growth opportunities with medium term ROIC ~15%, including
• Further expansion in existing businesses
• New business lines (both green-field and acquisitions)
Potential dividend
according to “30%
rule”
Maximizing capacity to take on sub-ordinated capital
Requirement to hold additional capital for lending to Ukraine may be cancelled
10
Investor Day, April 2007
OTP Group applies a standard “toolkit” to implement its risk management strategy
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
OTP Group credit risk management “toolkit”
Standardized riskmanagement
processes acrossOTP Group
Organization:clearlydefined
competen-cies,
business/riskseparation
Standardizedregulation alignedwith Basel II., local
requirements
Group-widestandards in
portfolioreporting
Riskmanagement IT
supportintegrated into
credit processes
ContinuousKnowledge
management,regular
workshops,HelpDesk
11
Investor Day, April 2007
6 79
44
43
7
10
2006 acquisitions did not change significantly the portfolio concentration or portfolio quality
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
2007
23CAGR:33%
13
2005
18
2006
Foreignsub-sidiaries
Domesticsub-sidiaries
OTPBank
Portfolio developmentLoans to customersEUR billions
Portfolio concentration
2007
2005
27%
Retailconsumerfinance
31%
Retail mortgages
42%
Whole-sale banking
Portfolio quality (NPL), OTP Group
23%
Retailconsumerfinance
37%
Retail mortgages
40%
Whole-sale banking
3.6%
2005
4.5%*
2006
* Corrected according to OTP standards
12
Investor Day, April 2007
Risk costs
CAPEX
(branch, IT)
Risk cost levels are planned to grow only moderately until 2010 due to prudent risk management practices and beneficial structural change
Financial
targets
Incentives
2006 2007 2008 2009 2010
Risk costper averageloan(Percent) 0.70
1.21 1.38 1.41 1.39
Provision on loan losses per loans(Percent)
Factors influencing risk costs, 2007–2010
• Russian, Ukrainian lending’s growing share• Growth in retail exceeds wholesale • Mortgage volume significant in retail
2.853.49 3.48 3.75 3.94
13
Investor Day, April 2007
~200 branches are being built in 2007 across the Group with another 200 refurbished
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
0
0
30–35
~5 ~15
~8<5
~45
<5 70–75 ~75
~80
~10
~125
40–45 40–45
30–35 20–25 50–55
~30 10–15 40–45
30–35
~5
~10
~10
200–210 190–200 ~400
~5
Total
Additional 60–65 rep. offices, ~5 VIP branches to be opened in 2007
Refurbishment
Ukraine
Russia
Bulgaria
Romania
Serbia
Croatia
Slovakia
Montenegro
Hungary
New branches
Required CAPEX:~EUR 130 million
14
Investor Day, April 2007
OTP Group will extend its branch network by around 650 branches in the next 4 years
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives ~650
<5
<5
25–30
0
20–25
130–135
170–175
280–290
Net increase in branch network
Number of branches
Ukraine
Russia
Bulgaria
Romania
Serbia
Croatia
Slovakia
Montenegro
Subsidiary total
Required CAPEX: ~EUR 440 million*• EUR 130 million in 2007*• EUR 150-200 million in 2008*
* Including renovations
15
Investor Day, April 2007
Risk costs
CAPEX
(branch, IT)
Upon completion of branch expansion, OTP will cover the region with ~1,900 branches
Financial
targets
Incentives
Russia
Ukraine
Slovakia
Hungary
Croatia RomaniaSerbia
BulgariaMontenegro
260–270
200–210
320–340
390–400
110–115
90–110
70–75
~420
25–35
2010 number of OTP banking group branches in the CEE region
Still a specialist approach outside Hungary and Bulgaria in competitive comparison
16
Investor Day, April 2007
OTP Group will invest significantly into the IT systems of foreign subsidiaries
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
2007 IT CAPEX (EUR millions)
10
10
5
5
5
5
20
~60<1
All subsi-diaries
Most important developments
• Branch equipment for new/refurbished locations
• Extension of ATM/POS networks
• CRM and data warehouse developments
• New product developments
APPROXIMATEFIGURES
Ukraine Russia Bulgaria Romania Serbia Croatia Slovakia Monte-negro
17
Investor Day, April 2007
Group-level executive incentive scheme consists of four elements, creating a dynamic interest system
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
Option
Premium
Partly depending on foreignsubsidiaries’ performance
OTPDeputy
CEO
OTP head ofdepartment/
Seniorexpert Incentive
elements
OptionShare-pricegrowth
Profit-sharingOver-achievement ofstretched sub-sidiary targets
Premium X times monthlysalary
Base salary Fix
Principle
RESULT +PERFORMANCE(individual KPI)
RESULT +PERFORMANCE(individual KPI)
PERFORMANCE
FIX
Sharepricedriven
Predictability
Full dependence on foreignSubsidiaries’ performance
New elementlinked to foreignsubsidiaries
Profit-Sharing*
Basesalary
SubsidiaryCEO/
Deputy CEO
* At 5–10% average overperformance
18
Investor Day, April 2007
Aim of new profit-sharing program is to directly incentivize over-achievement of stretched targets
Financial
targets
Risk costs
CAPEX
(branch, IT)
Incentives
Principles of profit-sharing program
Result driven: Incentivizes for over-achievement by directly rewarding subsidiaryexecutives and indirectly group-level executives and experts
Robust/Transparent: Pre-defined level of profit-sharing, pre-defined frameworkand minimum-requirements (KPI), when allocation is not automatic
Fair: All subsidiaries covered to the same extent, driven by same principles
Proportional: Represents significant, but not over-weighted part of executiveincome – in case of bigger bank, higher number of participants involved ensuresproportional individual share
Flexible: Annual re-parameterization of individual rewards based onperformance by decision of CEO, SB or LIIB*
* Subsidiary Integration and Management Committee
Investor Day, April 2007
OTP Banking Group – International Management Model
Mr. László Bencsik, Managing Director Planning and Controlling, LIIB Secretary
Investor Day, April 2007
2
Dual-logic organizational structure needed to reach maximum value-creation from Group-level synergies
Business management model1
Relevant areas
• Retail• Corporate• Sales and
Marketing
Core model
• In core businesses, subsidiary management is in charge and responsible for performance
• At HQs, strategic direction, targets and major elements of the business model are set as a result of intense discussions with subsidiaries’ management
• In order to support the agreed strategy• Selected larger initiatives – ”action tasks” – are supported
and managed (if needed) from HQ• Intra-group knowledge/experience sharing/ transfer is
assured through knowledge forums at business expert level
Functional management model2
• Risk management
• Strategy• Controlling
and planning• Accounting• Internal audit• Compliance• Bank security• HR• IT
• Functional OTP Bank leaders have clearly defined organizational authority, direct (decision-making) and indirect (prescribing policies and procedures) power
• Development and operations of existing IT systems done locally except if the application is provided from a central unit. New implementation typically supported from HQs
Hub and spoke operational model under development for treasury, project finance
Targets
Reasons
Tools
OTP developed a flexible group management model
Local leadership controlled by governing bodies
Group-wide experience sharing in business areas
Coordination at Group Committee
Direct incentives
• The primary responsibility, accountability and authority lies with local top management familiar with local circumstances, with formal control through ownership structure and functional control (risk management, controlling, compliance, internal audit)
• In business areas, key task of OTP retail/corporate experts is to facilitate sharing of best practices and ensure quality of operations based primarily on informal cooperation and on working together on selected key issues
• Issue resolution through LIIB (Subsidiary Integration and Management Committee) for subsidiaries related topics supported by ALCO, IT and CAPEX committees
• Chairman of boards translate decisions directly to subsidiaries
• OTP business management, experts and functional management directly responsible for subsidiary impact
• Subsidiary top management involved in profit-sharing program
Investor Day, April 2007
3
• Responsible for group-level business line performance reflected in incentives
• No direct authority over subsidiary lines of business
• Dos: Information gathering, opinion sharing, project management
• Don’ts: Have direct authority over subsidiary experts
Country managers’ main tasks
• Monitor the completion of action plans at subsidiary level
• Signal issues to Board/Chairman
• Coordinate the support of various OTP Bank/other Banking Group member areas to the subsidiary
• Prepare Board meetings
• Coordinate the dissemination of Board decisions/results
• Chairman responsible for subsidiary’s overall targets, action plan
• Board members responsible for subsidiary’s certain business/functional area as distributed by Chairman
Local CEOs and management are the cornerstones of the business management model, supported by governing bodies and OTP experts
• Full responsibility for subsidiary P&L and operations
OTP BankCEO
OTP BankChairman and CEO
Head of LoBHead of LoBHead of LoBHead of LoBOTP Bank
Business experts
Business expertsBusiness experts
Business Experts OTP Bank
Business expertsBusiness expertsBusiness expertsBusiness experts
Chairman of Supervisory Board/Board of Directors
Chairman of Supervisory Board/Board of DirectorsChairman of Supervisory Board/Board of Directors
Chairman of Supervisory Board/Board of Directors
Staff for SB/BoDCountry manager
Staff for SB/BoDCountry managerStaff for SB/BoDCountry manager
Staff for SB/BoDCountry manager
Subsidiary CEOSubsidiary CEOSubsidiary CEOSubsidiary CEO
Subsidiary Head of LoB
Subsidiary Head of LoBSubsidiary Head of LoB
Subsidiary Head of LoB
• Initially focus on transfor -mation management through monitoring action plans later on concentrate on group -wide initiativesServe as an escalation forum (in specific cases)
•
Coordinate horizontal and vertical axes of matrix
LIIB
Best practice sharing in knowledge forum
Actual project tasks based on LIIB program
• ……• ……• ……• ……• ……
Best practice sharing in knowledge forum
Best practice sharing in knowledge forum
Actual project tasks based on LIIB program
Actual project tasks based on LIIB program
• ……• ……• ……• ……• ……
• ……• ……• ……• ……• ……
Investor Day, April 2007
4
~120 subsidiary action plans and 12 group level projects have been defined for 2007 and will be monitored monthly/quarterly; knowledge forums kicked off with >400 participants
Subsidiary action plans Group-level projects
• Tasks to be completed by subsidiaries
• In order to reach 2007–2010 financial targets
• Assisted by other banking group members
• Banking-group level efforts requiring coordinated solutions
• Directed from OTP Bank Hungary with the participation of banking group members
Description
Russia
Ukraine
Bulgaria
Romania
Croatia
Slovakia
Serbia
Montenegro
Number of action plan ideas
6 (projects)
15
12
12
20
16
21
18
Number of projects
Regional Business initiatives
7
Risk Manage-ment
3
Strategy andFinance
1
HR1
BDP-OPR048-20
RUSSIA – 2007 ACTION PLAN (1/3)
2007 key actionsOperativeResponsible
KPI
1 Expand POS agents network
• Fedoseeva/Krotov
Timeline
2007 Mar
2008 Jan Variable Value
OTP Bank Hungary assistance required
Organizational unit Name
Required activity
• – • –
2 Launch mortgage
• Arzantsev/Suniaev
• Retail Directorate
• ImreNémeth
• Consul-ting
3 Retail network expansion
• Suniaev/Brilev
• Investment Department
• Marketing and Sales Directorate
• Bank Security Directorate
• ZoltánSzrenkó
• Gabriella Balogh
• TiborGumilár, Sándor Csia
• Consul-ting
• Training
• –
DEFINED IN
DETA
IL
LIIB cockpit, June 27th, 2007
Countries
Group-wide projects
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
Regional business
Risk mana-gement
Strategy and Fin.
HR
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
LIIB action needed
• …• …• …• …
Status information to LIIB
• …• …• …• …
Regional business
Risk mana-gement
Strategy and Fin.
HR
Monitored by LIIB* once a month
Monitored by LIIB* once a quarter
* Subsidiary Integration and Management Committee
6 knowledge forums already startedin Q1 2007 with >400 participantsfrom CEOs to operational level
Investor Day, April 2007
Unique growth opportunity in the CEE regionMacroeconomic and financial market outlook
Mr. Tamás Schenk, director, Strategy and Economic Research DirectorateMr. Tamás Vojnits, chief economist
2
Investor Day, April 2007
Central-Eastern Europe and Russia were the fastest growing banking markets in the last five years – there is a good chance to preserve the momentum
2000 2005 Regional profit pool 2005
Regional revenues
……CAGR 2000–2005 Revenue CAGR below 7%
Revenue CAGR 7–15%
Revenue CAGR above 15%
Revenue CAGR below 0%
Revenue CAGR below 7%
Revenue CAGR 7–15%
Revenue CAGR above 15%
Revenue CAGR below 0%
675
1,036
9.0%
9878
4.7%
232 222
-0.9%
228143
9.8%
5125
15.6%
2217
5.0%
North America
Western Europe
Middle East
Japan
Asia
Latin America Australia
Africa
293293
1919
158158
3939
6767
2424
Global revenue poolUSD billions
1,6662,438
7.9%
33
5525
17.1%
1313
3213
19.3%
CE Europe
88 2.514.1
41.0%
Russia33
627627
HEAT MAPS: 2000–2005 REVENUES AFTER RISK COST; 2005 AFTER-TAX PROFITS; REVENUE CAGR 2000–2005USD billions, percent
455
681
8.4%
Source: McKinsey
3
Investor Day, April 2007
Key drivers of banking business growth are in place in all markets
Retail banking • Increasing household income and strengthening confidence• Delayed consumption and purchase of durables – now exercised• Important institutions in operation and key legislation in force⇒ Fast loan penetration growth with slower increase in interest
burden relative to income⇒ Massive accumulation of wealth with diversifying portfolios
Wholesale banking• Export and investment growth fuel credit demand• SMEs gain foothold and have so far been financed mostly by equity• EU funds become available in some countries⇒ Double-digit corporate lending volume growth
• Strong (mostly 5%+) real economy growth fuelled by domestic consumption and export
• Managed and decreasing inflation opens room for interest rate decrease
Economicgrowth
Deepening offinancialintermediation
• Higher interest rate environment than in Western Europe• Low per capita volumes and heavy investments limit margin erosion• Market development still before commoditization phase• Relatively low fee revenues, negative deposit margins in some
countries
Moderatemargincompression
CEE region’s* banking
revenues after risk cost
expected to grow by 23% CAGR
till 2010
* CEE countries in OTP universe only
4
Investor Day, April 2007
Strong and robust economic growth expected in most CEE countries
-4-202468
10
04 06 08F 10F
Household consumption growth (Percent)
0
5
10
15
20
04 05 06 07F 08F 09F 10F
Export growth (Percent)
GDP growth (Percent)
5.1
4.2
3.3
2.4
3.9
4.94.2
06 09F07F052004 10F08F
-4-202468
10
04 06 08F 10F
Consumption growth (Percent)
0
5
10
15
20
04 05 06 07F 08F 09F 10F
Export growth (Percent)
GDP growth (Percent)
6.8
4.9
6.65.8 5.6 5.3 5.3
2004 05 06 07F 08F 10F09F
Hungary CEE8* average
Hungary
Hungary
CEE8
CEE8
* CEE8: countries of OTP’s foreign subsidiaries; non-weighted, averageSource: Eurostat, National statistics, OTP
5
Investor Day, April 2007
Managed decrease of inflation creates room for interest rate cuts
02468
101214161820
2004 05 06 07F 08F 09F 10F
Inflation and HUF reference rate(Percent, annual avg)
Hungary
02468
101214161820
2004 05 06 07F 08F 09F 10F
Inflation and LOC reference rate(Percent, annual avg)
CEE4
Inflation
Interest rate
Russia
Ukraine
Romania
Bulgaria
* CEE4: Russia, Ukraine, Bulgaria, RomaniaSource: Eurostat, National statistics, OTP
6
Investor Day, April 2007
Past years’ high wage growth contributed to strong consumer confidence – except in Hungary…
Bulgaria
Ukraine
Romania
Russia
Hungary100%
150%
200%
250%
300%
2003 2005 2007 2009
Net real wage growth(2002=100%)
Consumer confidence indices(point)
Bulgaria
Romania
Hungary
Russia(Rhs)
-60
-50
-40
-30
-20
-10
0
01/2
005
03/200
5
05/200
5
07/200
5
09/200
5
11/200
5
01/2
006
03/2
006
05/200
6
07/200
6
09/200
6
11/200
6
01/200
7
03/2
007
85
87
89
91
93
95
97
99
101
103
105
Source: Eurostat, National statistics, OTP
7
Investor Day, April 2007
… where loan demand is relentless despite falling consumer confidence
Hungary:Retail loan flows in percent of GDP (12-month rolling) and consumer confidence
Source: GKI, KSH
8
Investor Day, April 2007
Consumption delayed for decades will likely lead to higher household expenditure in the following years
14151299Computers
Penetration of selected durables/assets (in percent of population, 2005/2006)
201638
1617Passengercars
3937473530
Ukraine Bulgaria Romania Hungary
Owner occupied dwellings
Russia
30–120
Germany–Spain
45–60
Spain–Italy
25–35
Spain–Portugal
EU benchmark
16.05.66.60.83.1
Credit cardsper capita
Retail penetration of lending products (Percent, 2005/2006)
18,63,95,5 n/a n/a
Personal loansper capita
20,0
2,02,20,40,2
Russia Ukraine Bulgaria Romania Hungary
Mortgage loansper owner occupied dwellings
25–60
Spain–Portugal
20
Germany
40-50
Portugal-GermanySource:EIU, Hypostat, statistical offices, national banks, McKinsey; OTP
9
Investor Day, April 2007
Key institutions and pieces of legislation necessary for bankingoperation are in force
Status of major institutional/legislation elements of banking
Major elements
Deposit insurance
Credit bureau
Mortgage foreclosure
Asset management
Pension system
Up-to-date legislationOperating conditions given, but further development neededBasic regulation needed
Ukraine Bulgaria Romania Hungary Russia
Source: National legislations, OTP
HIGH LEVEL
10
Investor Day, April 2007
Retail loan penetration is expected to increase by around 12 ppt until 2010
Retail loan flows(Percent of GDP)
Retail loan penetration(Percent of GDP)
Annual new debt creation of 4-6% … … still leaves us with moderate stock/GDP levels
Source: Eurostat, OTP
11
Investor Day, April 2007
The increase in retail loan penetration has been accompanied by rising shares of mortgage loans in many markets, …
Retail loan penetration and weight of mortgage loans, 2005
Source: McKinsey, OTP
12
Investor Day, April 2007
… and we expect similar trends to play out in CEE countries
2006
2011
Retail loan penetration and weight of mortgage loans, 2006-2011
Source: McKinsey, OTP
13
Investor Day, April 2007
Retail lending is expected to grow at over 30% CAGR in Russia, Ukraine and Romania till 2010
3,431
2,715
6,146
2006
6,299
4,454
2010
10,753
Mortgage loans
Consumer loans
Hungary
16%
13%
…% CAGR 2006–2010
1,831
306
2,137
2006
6,261
2,029
8,290
2010
Russia
36%
60%
24
79
2006
161
104
265
2010
55
Ukraine
31%
6
4
10
2006
11
15
26
2010
Bulgaria
39%
29
15
44
2006
89
53
142
2010
Romania
32%
36%45%
17%
Volume of retail loans, local currency
15% 40% 36% 27% 34%
Source: National Banks, McKinsey, OTP
14
Investor Day, April 2007
* CEE8 countries: countries of OTP’s foreign subsidiariesSource: National banks, OTP
The interest burden of households will increase from 2.5% of GDPto around 3.5% of GDP till 2010
2.92.6 2.7
04 07F 10F
3.0
0.71.8
04 07F 10F
3.8
1.1
2.6
04 07F 10F
3.8
0.5
2.8
04 07F 10F
3.5
1.12.1
04 07F 10F
3.4
0.9
2.5
04 07F 10F
Ukraine Bulgaria Romania Hungary Russia CEE8* average
Portugal (2004)
Spain (2004)
4.4
3.0
• Increasing disposable income• Increasing retail loan penetration• Increasing share of mortgage loans• Longer average maturity of loans• Moderate compression of margins
Key drivers of interest burden
ESTIMATES
Interest burden of households as % of GDP
15
Investor Day, April 2007
Income growth fuelled gross savings will keep net saving rates positive
Gross savings
Net debt creation
Net savings
3.43.12.72.1
2.8
4.2
2.3
2004 05 06 07F 08F 09F 10F
Hungary
8.77.9
5.95.2
8.08.8
7.4
2004 05 06 07F 08F 09F 10F
5.34.8
3.23.1
5.24.65.1
09F 10F06 07F 08F2004 05
Gross savings
Net debt creation
Net savings
1.11.11.21.52.62.3
1.4
2004 05 06 07F 08F 09F 10F
CEE8* average
6.16.26.67.1
8.9
6.2
4.0
2004 05 06 07F 08F 09F 10F
5.15.15.45.66.3
3.92.6
2004 05 06 07F 08F 10F09F
Gross savings and debt creation of households (Percent of GDP)
* CEE8 countries: countries of OTP’s foreign subsidiaries; non-weighted, averageSource: National banks, OTP
16
Investor Day, April 2007
Source: National Banks, McKinsey, OTP
Retail savings are expected to grow in the range of 15-30% CAGR in OTP’smajor foreign markets till 2010
5,995
3,367
3,887
13,249
2006
8,220
4,905
2010
20,917
7,792
Insurance
Investment
Deposits
Hungary
8%
10%
19%
…% CAGR 2006–2010
923
3,845
145
4,913
2006
8,584
771
3,746
13,101
2010
Russia
22%
52%
42%
20
106
2006
265
27
8
300
2010
104
Ukraine
26%
102%
4
15
15
1
17
2006
27
4
35
2010
Bulgaria
17%
29%6
43
22
2
67
2006
78
37
121
2010
Romania
16%
13%
28%
88%
31%
Volume of retail savings, local currency
12% 28% 29% 19% 16%
17
Investor Day, April 2007
Source: National Banks, OTP
Corporate loan flow forecasted at ~4.5% of GDP,which translates to near 20% average volume growth
Hungary
Bulgaria
Ukraine
Romania
Russia
0
10
20
30
40
50
60
2004 2005 2006 2007F 2008F 2009F 2010F
Corporate loan penetration (Percent of GDP)Export is expected to grow by ~10%
Investment growth rates to stay double digit
SMEs with poor bank usage today are likely to strengthen
The region expects EUR 40bn from EU funds
18
Investor Day, April 2007
Source: National Banks, McKinsey, OTP
Although a decline in margins seems unavoidable, the region is likely to preserve some of its margin advantage
3.62.3
4.73.0
4.7 5.0 5.4
2.33.1
HU SK BG CR U RU SE CZ PL
Net interest margin of the banking system, %, 2005
Major factors limiting margin narrowing• Higher interest rate environment than in Western Europe• Low per capita volumes, weaker scale economies and heavy
investments limits margin erosion• Market development still before commoditization phase• Relatively low fee revenues, product development with fee focus• Currently negative deposit margins in some countries
Example of mortgage loans in different marketsInterest plus fee margin compared to reference rates, OTP subs non-weighted average, benchmark market rates, percent, 2006
1.3 1.7 0.31.72.73.43.83.7
2.0-7.01.2-4.0
OT
Psu
bs
OT
Psu
bs
20
10
Cze
ch
Po
lan
d
Ind
on
esi
a
Ind
ia
Po
rtu
ga
l
Sp
ain
EU
15
ma
x
EU
15
min
OTP has entered markets characterized by relatively high margins, …
…, where several factors limit margin narrowing
19
Investor Day, April 2007
Source: McKinsey, OTP
OTP targets to obtain ~7% of the regional banking revenues
Total banking revenues after risk cost in the countries of OTP’s universe
EUR billions
ESTIMATE
3,7 6,2
24,6
59,1
20102006
CAGR13%45%
…%OTP Group’s market share in revenues
CAGR25%
Hungary
Foreign markets
Total
2.3%
8%
~40%
3.2%
~7%
28.3
65.3CAGR23%
Investor Day, April 2007
Hungary: Incumbent’s game focusing on customer loyalty
Mr. Csaba Lantos, Deputy-CEO, OTP Bank
Investor Day, April 2007
2
Hungary: temporary decline, but still room for further growth
Market • 4th phase of banking sector development: relationship battle• Intensified competition in retail
Bank & group
• No.1 banking group in Hungary, market leader in retail savings, mortgages, card business, e-banking, pension funds and fund management; strong positions in insurance, building society and consumer finance
Strategy
& targets
• Maintain clear market leadership through focus on customer loyalty and improving customer experience
• EUR 0.99 billion pre-tax profit target in 2010
Investor Day, April 2007
3OTP Group in Hungary will deliver EUR 0.99 billion profit before tax through focused sales activity in retail
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
Key actions for 2007
• Launch credit protection program for retail clients in trouble
• Upgrade investment product portfolio/sales effectiveness/advisory capability
• Expand corporate sales effectiveness program
• Launch treasury sales program
2007–2010 strategic objectives
• Retain solid overall market leadership with ~20% ROE
– Reinforce retail dominance through improved customer experience and already efficient processes
– Strengthen position in wholesale through sales intensification and revenue management
Pre-tax profitEUR billion
0.990.71
2010E
CAGR: 9%
2006
Investor Day, April 2007
4
Domestic market growth expected to pick up after two-year slowdown
2
4
6
2005 2006 2007 2008 2009 2010
Real GDP growth
Percent, annual
4
6
8
2005 2006 2007 2008 2009 2010
Key interest rate
Percent, Central bank rate
Hungarian banking market – Revenues after risk cost
EUR billions
0.8 1.3
2.9
4.93.7
6.2
2006 2010E
Retail
Wholesale
CAGR: 13%
Based on penetrations and international examples, the
Hungarian market still has great growth potential in medium term
Investor Day, April 2007
5Accommodating and facilitating domestic market development requires continuous attention and creative improvement of value proposition
• Slower growth of financial markets for the next two years: new loan origination 3% of GDP, expected to be 5-6% in 2009-10
• Savings growth decreases to 5-6% of GDP in 2007-08, grow to 8% in the following years
• New branch openings by competitors, increasing role of agents• Increase in advertisement and media spending• Intensive product development
• Significant early pre-payment of consumer loans and mortgages• More active and sophisticated card usage• Use of electronic channels• Improving knowledge of financial products
• Re-pricing of „category 1” subsidised housing loans („Forrás loans”originated between 2001-2003)
• Mortgage/home equity/secured consumer loans become the most popular loan products
Effects of fiscal strengthening
Intensified competition
Changes in customer behaviour
Shift in retail loan demand
Major external challenges
Investor Day, April 2007
6Sustained dominant position through full-fledged financial services and well-spread distribution channels
Total assets of OTP Bank (EUR billions)
OTP Group in Hungary
17.914.212.4
10.410.1
Dec 2002
Dec 2003
Dec 2004
Dec 2005
Dec 2006
CAGR:15%
OTP Bank
OTP Mortgage
Bank
MerkantilGroup
OTP GaranciaInsurance
OTP Fund Manage-
ment
OTP Life Annuity
OTP Pension Funds
OTP Real Estate
Leasing
OTP Building Society
Branch and ATM network
• OTP: 408• Erste: 182• K&H: 168
Number of branches, EoY 2006
Investor Day, April 2007
7
In the previous strategic period, OTP Bank focused on the maximisation of revenues...
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Banking market – Revenue after risk cost, EUR million
OTP Group Hungary – Revenue after risk cost, EUR million
OTP Group Hungary – Market share, %
0.8 1.3
2.9
4.93.7
6.2
2006 2010E
CAGR: 13%
0.7 0.80.7
2.91.5
3.7
2000 2006
0.7
1.7
2000 2006
1.72.4
2006 2010E
Retail Wholesale
CAGR: 17%
CAGR: 17%
CAGR: 9%
2006 2010E
2000 2006
40%33%32%
27%
Total
33% 31%27% 25%
Retail: - 7%
Retail: - 2%
Investor Day, April 2007
8
... now focuses on customer loyalty, CRM and more complex corporate coverage
2007 Key actions for OTP Bank
• Revitalisation of OTP brand by introducing new logo and extensive image campaign
• Manage key moments of customer interaction to increase loyalty beyond efficient processes
• Launching customer loyalty program to strengthen brand loyalty, reducing churn
• Further development of CRM system for DM campaigns and product proposals
• Improvement of client profitability in corporate segment
• Development of investment advisory services
• Top retail value proposition
Pre-tax profit (EUR billions)
0.71 0.87
2006 2010
Gross loans (EUR billions)
CAGR: 15%
CAGR: 5%
12.4
7.1
2006 2010
Mid-term actions
• Renewal of product packages• Opening specialised branches for retail lending
and investment advisory
BANK ONLY
Investor Day, April 2007
9
Improve service quality and cross-sale activity
2007 Key actions for OTP Garancia
• Improving position in dynamically increasing segments with stable premium income
• Improving service quality through decreasing processing period of insurance contracts
• Development of sales support of agent network
• Cooperation with Merkantil Bank and its dealer partners to boost sales of carinsurances
Pre-tax profit (EUR millions)
3363
2006 2010
Insurance reserves (EUR billions)
CAGR: 17%
CAGR: 17%
1.160.61
2006 2010
Investor Day, April 2007
10
Strengthening market position through offering wider product range
2007 Key actions for OTP Fund Management
• Widening product portfolio: launching new investment funds, e.g. guaranteed, wider horizon
• Boosting sales of BUX ETF Fund and other CEE ETF’s
• Launching combined product
• Increasing other assets under management, e.g., pension funds
• Strategic cooperation with a global partner
Added Value* (EUR millions)
58 69
2006 2010
Assets under Management
(EUR billions)CAGR:
19%
CAGR: 4%
9.0
4.5
2006 2010
* Profit before tax + fees paid to OTP Bank
Investor Day, April 2007
11
Retaining market position in car-financing
2007 Key actions for Merkantil Bank
• Development of new products and distribution network
• Improving quality of dealer-loans through development of partner qualification system
• Cooperation with other group members and developing cross-sale activity
Pre-tax profit (EUR millions)
3445
2006 2010
Gross loans (EUR billions)
CAGR: 12%
CAGR: 8%
1.510.96
2006 2010
Investor Day, April 2007
12
OTP Group in Hungary: Impressive volume growth and ample profitability level
P&L and Balance sheet dataEUR billions
2006 2010
1.68 2.41
* Shareholder’s equity + subordinated debt** OTP Bank only, HAR
Total revenue afterrisk cost
0.71 0.99Pre-tax profit
0.59 0.82After-tax profit
11.17 19.01Total customer loans
11.05 14.07Total customerdeposits
4.05 6.69Equity*
17.27 28.61Total assets
Key indicators, %
2006 2010
5.1 4.5Net interest margin
56 56C/I
2.8 3.1After-tax ROA
23 19After-tax ROE
0.5 0.7Risk cost peraverage loan
9.9 9.5Capital adequacyratio**
Main challenges
• Continuously increasing competitive pressure
• Optimising funding cost on group level
OTP GROUP HUNGARY
Investor Day, April 2007
13
* Excluding: sales and trading, asset management** Retail deposits & transactions, consumer finance, mortgage, investments and
insurance (only distribution), wholesale banking*** Interest and fees, after risk cost
Declining market shares and margin levels, but balanced revenue growth
Pre-tax profit (EUR billions)
0.71 0.99
2006 2010
Revenues after risk cost (EUR billions)
CAGR: 9%
Market share,%
• Total** • Retail banking
Margins after risk cost,%
• Total***
2733
5.9
2006
2531
4.4• Retail banking 5.7 3.6
2010
• Wholesale banking* 11 11
• Wholesale banking* 1.8 1.8
CAGR: 9%
2.411.68
2006 2010
OTP GROUP HUNGARY
Investor Day, April 2007
Bulgaria: Continuing the Unique Success Story, Retaining Number 1 Retail Position
Ms. Diana Miteva, Head of Retail, DSK BankMs. Dorothea Nikolova, CFO, DSK Bank
Investor Day, April 2007
2
Bulgaria: No.1 retail position in a fast growing market
Market • Balanced banking market (~50/50 retail and wholesale) with fast growth (22% CAGR 2006–2010)
Bank • DSK No.1 in retail supported by 366-strong branch network• Presence in insurance, asset management, pension, leasing
Strategyand targets
• Focus on retaining No.1 retail position with intensified sales; targeting No.3 in wholesale
• EUR 0.21 billion pre-tax profit target for 2010
Investor Day, April 2007
3DSK will deliver EUR 0.21 billion pre-tax profit in 2010, based on strengthened sales and service quality
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
2007–2010 strategic objectives
• Maintain market leadership in retail through further improved service/sales
• Achieve top 3 position in wholesale through full product portfolio, streamlined credit process
Key actions for 2007
• Increase sales effectiveness through training and motivation
• Introduce CRM-based campaign management
• Streamline wholesale credit process
Pre-tax profitEUR billion
0.100.21
2010E
CAGR: 22%
2006
Investor Day, April 2007
4
The Bulgarian market is characterized by fast and balanced growth
0
2
4
6
8
2005 2006 2007 2008 2009 2010
Real GDP growth
Percent, annual
0
2
4
6
8
2005 2006 2007 2008 2009 2010
Key interest rate
Percent, Central bank rate
Bulgarian banking market – Revenues after risk cost
EUR billions
0.5
1.0
2010E
Retail
Wholesale
CAGR: 22%
0.5
1.0
2006
1.1
2.1
The Bulgarian market environment is compelling and provides great
opportunities for growth
Investor Day, April 2007
5
DSK leader in competitive Bulgarian banking sector
• 30 private banks, 5 largest banks hold 80% of retail loans, 71% of profit
• DSK Bank leader in retail, with 33% share of retail loans and 23% of profit
• Highly competitive market, product-, technology- and price-wise
• Open to EU member banks, intensive mergers & acquisitions
• Bulbank, HVB Bank Biochim and Hebrosbank
• Pireosbank and Eurobank
• Bulgarian Post Bank and DZI Bank
• Heavily regulated: 12% required capital adequacy, no Basel II. IRB allowed
Investor Day, April 2007
6DSK Bank is a diversified financial institution with significant growth and an extensive branch network
Total assets of DSK Bank (EUR billions) Branch network of DSK
DSK Bank
DSK GaranciaInsurance
DSK Leasing
POK-DSK Rodina
DSK Asset Manage-ment
DSK Tours DSK Trans Security
DSK Ga-rancia Life insurance
DSK Group
3.1
2.31.7
1.31.1
Dec 2002
Dec 2003
Dec 2004
Dec 2005
Dec 2006
• DSK: 366• Bulbank*: 327• First
Investment Bank: 103
Number of branches, EoY 2006
* After merger of Bulbank, HVB Bank Biochim, Hebrosbank
CAGR:30%
DSK Auto Leasing
Investor Day, April 2007
7
The experienced leadership guarantees strong results
Violina Marinova
Chairperson of the Management Board, CEO
Dorothea Nikolova
CFO
Diana Miteva
Retail
Kalin Klisarov
Risk Management
Miroslav Vichev
IT, Operations
Nikolay Borisov
Corporate
• 36 years in the banking sector
• 36 years at DSK
• 7 years in the banking sector
• 4 years at DSK
• 14 years in the banking sector
• 4 years at DSK
• 9 years in the banking sector
• 3 years at DSK
• 9 years in the banking sector
• 3 years at DSK
• 12 years in the banking sector
• 3 years at DSK
Dr. Csányi Sándor
Chairman of the Supervisory Board
Investor Day, April 2007
8DSK will focus on CRM, loyalty program, investment products whileexploiting OTP Bank know-how
• Increase sales effectiveness through training and motivation
• Implement CRM-based campaign management system to improve sales performance
• Set up loyalty program to retain customers and maintain market share
• Launch innovative investment products and improve system to strengthen market position
• Streamline and harmonize wholesale credit process to reduce throughput time and rejection rate
• Expand in Municipalities segment through new product offering
2007 Key actions for DSK
• Know-how in developing/setting up CRM system (Hungary)
Help from OTP Group
• Consultation on key success factors of loyalty program (Hungary)
• Investment product know-how, IT system (Hungary)
• Solutions to best build on EU funding programs (Hungary)
• Wholesale credit risk management tools (Hungary)
Mid-term actions
• Enlarge card product family• Further improve credit monitoring process
Investor Day, April 2007
9
Based on solid foundations, DSK Group will deliver outstanding results in 2010
P&L and BS data, EUR billions
2006 2010
0.19 0.35Total revenue afterrisk cost
0.10 0.21Pre-tax profit
0.08 0.19After-tax profit
2.19 5.44Total customer loans
2.08 4.47Total customerdeposits
0.35 0.84Equity
3.08 7.03Total assets
Key indicators, %
2006 2010
5.7 3.4Net interest margin
38 36C/I
3.1 2.9After-tax ROA
26 24After-tax ROE
1.7 0.7Risk cost peraverage loan
12.9 12.5Capital adequacyratio
Main challenges
• Sustain sales effectiveness amid intense competition• Keep up with rapid pace of product development
* Shareholder’s equity + subordinated debt
Investor Day, April 2007
10Stable or growing market share, relatively high margins are the foundations of DKS’s financial success
Pre-tax profit (EUR billions)
0.210.10
2006 2010
Revenues after risk cost (EUR billions)
CAGR: 17%
* Excluding: sales and trading, asset management** Interest and fees, after risk cost*** Retail deposits & transactions, consumer finance, mortgage, investments and
insurance (only distribution), wholesale banking
Market share, %
• Total*** • Retail banking
Margins**, %
• Total
2226
4.4
2006
2126
3.8• Retail banking 4.5 4.0
2010
• Wholesale banking* 7 11
• Wholesale banking* 3.8 3.0
CAGR: 22%
0.350.19
2006 2010
Investor Day, April 2007
Russia: Aggressive expansion in consumer finance and mortgage
Mr. László Wolf, Deputy CEO, OTP Bank;
Chairman of the Board of Directors, Investsberbank
Investor Day, April 2007
2
Market conditions are favourable for a focused approach
Market • Fast growth (28% CAGR, 2006–2010 of revenues after risk cost)• Retail as main area of expansion• Fragmented market (>1,000 players)
Bank • ISB’s focus on consumer finance with presence in corporate
segment • Strong network with 89 branches and ~80% POS coverage
Strategy
& targets
• Aggressive attack in consumer finance and mortgage; expansion in midsize-corporate segment
• EUR 0.34 billion pre-tax profit target in 2010
Investor Day, April 2007
3ISB will deliver EUR 0.34 billion pre-tax profit in 2010 through increased sales efficiency, channel expansion
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
Key actions for 2007
• Run sales trainings, implement sales effectiveness toolkit
• Open ~40 branches, expand agent network
• Launch mortgage and combined products
• Review and upgrade retail/corporate rating system
2007–2010 strategic objectives
• Turn into a leading retail mortgage and consumer finance player through expansion and efficiency gains
• Expand in mid corporate segment through state of the art loan process, product development and sales network
Pre-tax profitEUR billions
0.02
0.34
2006 2010E
CAGR: 98%
Investor Day, April 2007
4Market growth in Russia is outstanding and sustainable; retail is the main growth engine
4
6
8
2005 2006 2007 2008 2009 2010
Real GDP growth
Percent, annual
6
8
10
12
2005 2006 2007 2008 2009 2010
Key interest rate
Percent, Central bank rate
Russian banking market – Revenues after risk cost
EUR billions
816
7
15
2006
22
38
2010E
Retail
Wholesale
CAGR: 28%
Investor Day, April 2007
5
ISB has the space to grow in the emerging Russian banking sector
• Fragmented market of 1,000+ players (vs. ~30–50/country in Central Europe) offers opportunity for expansion
• 80% of retail banking revenues come from PFL that fuels debt driven retail growth
• Clear value proposition for mass can win new clients: offers are not differentiated currently by segment
Investor Day, April 2007
6
ISB has achieved notable growth in the last years
Total assets of ISB Bank (EUR billions)
Investberbank merged two subsidiaries before OTP acquisition
1.31.0
0.60.5
Dec 2003 Dec 2004 Dec 2005 Dec 2006
CAGR:27%
• ISB: 89• Sberbank:
20,208• Rosselkhoz
Bank: 493
Number of branches,EoY 2006
Branch and POS network of ISB
• Local corporate bank in Novorossiysk
• Local universal bank in Omsk
• Consumer finance focused retail bank with country-wide presence
Promfinservicebank Omskpromstroibank
Investor Day, April 2007
7An international leadership team with significant local experience guarantees strong results
Inabat TörökActing CEO / Risk
• Previously, Head of Credit Division and Branch network at ÁÉB (Budapest)
László Wolf
Chairman of the Board of Directors
Evgeny EgorovDeputy CEO,
Treasury
• Previously, Deputy Board Chairman of Russian General Bank for 6 years
László CsukaDeputy CEO,
Retail
• Previously, Deputy CEO of FHB Bank (Budapest)
• Graduated in Moscow
Evgeny LolaOperations
• Previously, Head of Internal Audit with multiple bank experience
János LipcseiDeputy CEO, CFO
• 17 years of OTP experience
• Graduated in Leningrad
Evgeny SavischevAdministrative
• Previously, held managerial positions in different Russian banks
• Head of Omsk Bank since 1987
Valery Stephanov
Vice president,Head of Omsk
Dmitry KhalenevCorporate
• Significant Russian banking sector experience at various institutions
Investor Day, April 2007
8ISB will focus on sales force effectiveness, mortgage, retail network expansion leveraging OTP Bank knowledge
• Develop and implement incentives, performance monitoring system and sales training program
2007 Key actions for ISB
• Sales force effectiveness tools (Hungary, Bulgaria)
Help from OTP Group
Mid-term actions
• Review IT architecture• Centralize/automate back-office activities
• Develop and launch new retail mortgage products
• Enhance project finance activity• Expand agent network and build 40 new
branches in the first 8 months
• Optimize credit risk assessment process for Consumer Finance
• Upgrade planning and controlling system
• Know-how of key mortgage products (Hungary, Ukraine)
• Consultation on model branches, branch opening process best practice (Hungary)
• Procedures of credit risk management (Hungary)
• Know-how and consultation on system selection and implementation (Hungary)
Investor Day, April 2007
9
ISB is setting ambitious targets
P&L and BS data, EUR billions
2006 2010
0.11 0.69Total revenue afterrisk cost
0.02 0.34Pre-tax profit
0.01 0.23After-tax profit
0.86 9.77Total customer loans
1.01 3.57Total customerdeposits
0.17 1.19Equity*
1.31 10.64Total assets
Key indicators, %
2006 2010
13 11Net interest margin
60 34C/I
1.4 2.6After-tax ROA
13 35After-tax ROE
6.0 4.3Risk cost peraverage loan
10.8 11.0Capital adequacyratio
Main challenges
• Manage credit risk of consumer finance expansion
• Guarantee human resources to support growth* Shareholder’s equity + subordinated debt
Investor Day, April 2007
10
* Excluding: sales and trading, asset management** Interest and fees, after risk cost*** Retail deposits & transactions, consumer finance, mortgage, investments and
insurance (only distribution), wholesale banking
Quadrupling market share on a rapidly growing market and maintaining high margins are the foundations of ISB’s financial success
Pre-tax profit (EUR billions)
0.34
0.02
2006 2010
Revenues after risk cost (EUR billions)
CAGR: 57%
Market share, %
• Total*** • Retail banking
Margins**, %
• Total
0.50.7
8.2
2006
2.12.8
6.2• Retail banking 10.2 6.7
2010
• Wholesale banking* <0.1 0.5
• Wholesale banking* n/a 4.8
CAGR: 98%
0.69
0.11
2006 2010
Investor Day, April 2007
Ukraine: Focused attack on affluent and retail lending segments
Mr. Dmitry Zinkov, CEO, CJSC OTP Bank
Investor Day, April 2007
2
Market conditions are supportive for a focused approach
Market • Steady growth (23% CAGR, 2006–2010)• Retail as the main area of expansion (29% CAGR vs 19%
in wholesale)
Bank • CJSC OTP Bank has sustained notable growth
(54% CAGR, 2002–2006)• Nationwide network of 46 affluent branches
Strategy
& targets
• Steady focus on affluent segment and SMEs through extensive branch/agent network development and product introduction
• EUR 0.25 billion pre-tax profit target in 2010
Investor Day, April 2007
3CJSC OTP Bank will deliver EUR 0.25 billion pre-tax profit in 2010, based on massive branch expansion and affluent positioning
2007–2010 strategic objectives
• Develop country-wide branch, partner and agent-network
• Enlarge affluent product/service range (e-banking, easy-to-use C/A services)
• Grow rapidly in SME/local corporate through comprehensive product/service offering
Key actions for 2007
• Build 76 new branches and a nationwide network of agents
• Develop investment and Private Banking value proposition
• Streamline corporate credit process
Pre-tax profitEUR billion
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
po
sit
ion
ing
Market dynamics
0.07
0.25
2010E
CAGR: 39%
2006
Investor Day, April 2007
4
The Ukrainian market is characterized by fast growth especially in retail lending
0
2
4
6
8
10
2005 2006 2007 2008 2009 2010
Real GDP growth
Percent, annual
024
68
10
2005 2006 2007 2008 2009 2010
Key interest rate
Percent, Central bank rate
Ukrainian banking market – Revenues after risk cost
EUR billions
4.2
2.1
3.1
7.0
1.0
2.8
2006 2010E
Retail
Wholesale
CAGR: 23%
The Ukrainian market environment has tremendous growth potential
Investor Day, April 2007
5
Most growth coming from retail, SME
• Low concentration on the market: ~10% asset share for the largest player
• High interest spread, especially with foreign funding
• Dynamically developing retail segment: consumer finance ~130% volume growth in past 2 years
• Stable high growth in mortgages and car loans
• Over 100% annual expansion expected from SME segment in the next 2 years
Investor Day, April 2007
6
CJSC OTP Bank has grown tremendously over the last years
Total assets of CJSC OTP Bank (EUR billions)
Branch network of CJSC OTP Bank
0.60.40.3
1.7
1.2
Dec 2003
Dec 2005
Dec 2006
Dec 2004
CAGR:54%
Dec 2002
• CJSC OTP Bank: 78
• RaiffeisenBank Aval: 1400
• Ukrsotsbank: 500
Number ofbranches
Russia
Black Sea
Russia
Sea of Azov
MoldovaHungary
Romania
Poland
Belarus
Kyiv
Dnipropetrovsk
Simferopil
Odesa
Chernivtsy
VinnytsyaCherkasy
Zhytomyr
RivneLutsk
Lviv
Uzhgorod
Ternopil
Ivano-Frankivsk
Kherson
Nikolaev
Poltava
Kharkiv
Lugansk
Chernigiv
Sumy
Kirovograd
DonetskZaporizhzhya
Khmelnitsky
Mukachevo
Illichivsk
Mariupol
Berdyansk
Melitopol
Kremenchuk
Kryvyy Rig
Energodar
Kramatorsk
Sevastopol
Bila TserkvaStryy
Severodonetsk
Izmail
Dniprodzerzhinsk
Makiivka
Uman
Konotop
Boryspil
Slovyansk
Gorlivka
Lysychansk
Kovel
YuzhnoukrainskMarganets
Zhovti Vody
Romny
Investor Day, April 2007
7
The strength of the management team is a cornerstone of future growth
Dmitry Zinkov, CEO
Chairman of the Board, CEO
Dmytro Beletsky
Retail
• 14 years in banking sector• 8 years with CJSC OTP
• 15 years in banking sector
• 3 years with CJSC OTP
Pál KovácsChairman of Supervisory Board
Liliya Lazepko
Operations, IT
• 14 years in banking sector
• 9 years with CJSC OTP
Irina Mikhailova
Corporate
• 14 years in banking sector
• 9 years with CJSC OTP
Investor Day, April 2007
8CJSC OTP Bank will focus on developing branch network and affluent value proposition while leveraging OTP Group expertise
• Open 76 new branches
• Expand partners, agents and mobile bankers network
• Develop solid affluent value proposition
• Introduce Investment and Private Banking products
2007 Key actions for CJSC OTP Bank
• Know-how on branch development, procurement (Hungary, Bulgaria)
• Experience on agent network expansion (Hungary, Bulgaria)
• Lessons learned from affluent and Private Banking value proposition, investment product design (Hungary)
Help from OTP Group
Mid-term actions
• Further expand branch network• Rationalize back-office operations
Investor Day, April 2007
9
Based on focused expansion, CJSC OTP Bank will deliver superb results in 2010
P&L and Balance sheet data, EUR billions
2006 2010
0.11 0.42Total revenue afterrisk cost
0.07 0.25Pre-tax profit
0.05 0.19After-tax profit
1.47 5.84Total customer loans
0.59 2.90Total customerdeposits
0.20 0.75Equity*
1.71 6.86Total assets
Key indicators, %
2006 2010
6.7 6.2Net interest margin
36 37C/I
3.4 3.1After-tax ROA
32 30After-tax ROE
0.9 0.8Risk cost peraverage loan
12.2 11.8Capital adequacyratio
Main challenges
• Keep up fast pace of branch and agent network development
• Solidify high level of sales effectiveness* Shareholder’s equity + subordinated debt
Investor Day, April 2007
10A focused expansion and maintaining high margin levels are the key elements of CJSC OTP Bank’s financial success
Pre-tax profit (EUR billions)
0.25
0.07
2006 2010
CAGR:39%
Revenues after risk cost (EUR billions)
0.42
0.11
2006 2010
CAGR: 39%
Market share, %
• Total** • Retail banking
Margins, %
• Total
57
5.9
2006
710
5.1• Retail banking 5.3 5.4
2010
• Wholesale banking* 3 4
• Wholesale banking* 6.3 4.3
* Excluding: sales and trading, asset management** Retail deposits & transactions, consumer finance, mortgage, investments and
insurance (only distribution), wholesale banking
Investor Day, April 2007
Romania: Become significant retail/corporate player, achieve sound profitability
Dr. Frigyes Hárshegyi; CEO, OTP Bank Romania
Investor Day, April 2007
2
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
Market conditions and capabilities set OTP Bank Romania for profitable growth
Market • Steady growth (21% CAGR, 2006–2010)• Both retail and wholesale revenue pools double by 2010
Bank • OTP Bank Romania shows significant asset growth since
acquisition (quadrupling assets)• Presence in all regions and major cities with 66 branches
Strategy
& targets
• Maintain universal retail profile, focus on micro, small and mid-size corporate, increase sales and operational efficiency
• EUR 0.07 billion pre-tax target in 2010
Investor Day, April 2007
3
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
OBR will turn into a profitable bank with a focused and sales-oriented strategy
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
2007–2010 strategic objectives
• Step-up sales focus in retail, concentrate on mass/upper mass segments
• Focus corporate banking strategy on micro, small, medium corporate and project finance
• Continue with cost-effective network development, centralize for economiesof scale
Key actions for 2007
• Enhance consumer loan cross-sell • Launch innovative retail products (e.g.,
mortgages, deposits), develop private banking
• Expand sales network: new branch models; countrywide merchant acquisition, agents/partners
• Step-up corporate sales capabilities, set up project finance
Pre-tax profitEUR billion
0.07
-0.01
2006 2010E
CAGR: n/a
Investor Day, April 2007
4
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
EU membership further accelerates market growth in Romania
0
2
4
6
8
10
2005 2006 2007 2008 2009 2010
Real GDP growth
Percent, annual
4
6
8
10
2005 2006 2007 2008 2009 2010
Key interest rate
Percent, Central bank rate
Romanian banking market – Revenues after risk cost
EUR billions
2.4
1.0
1.6
2.6
2006
3.1
5.5
2010E
Retail
Wholesale
CAGR: 21%
The Romanian market environment offers great opportunities for growth
Investor Day, April 2007
5
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
OBR can become a decisive factor in the dynamic Romanian banking sector
• Foreign Direct Investment pouring in, many foreign banks are just coming, 1,100 new bank branches in 2006
• Central Bank has very restrictive policies (e.g., reserve rate 40% for FX, 20% for RON), future policy will greatly influence profitability
• Strong development of the banking market – 46.2% increase in 2006. OTP managed to boost its assets 3.5 times
• High growth potential – even the banks at the top end of the asset ranking grew over 50% in 2006
• Increase of retail financing, mainly sustained by the growth of the mortgage loans – in 2010, the market will be almost 3 times bigger
• Growing customer sophistication leads to the emergence of more complex banking products and services
Investor Day, April 2007
6
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
OBR capability provides foundation for profitable growth
Total assets of OBR Bank (EUR billions)
OBR Group
* Map shows branch network on time of acquisition (2004)
• …
Branch network of OBR*
OTP Bank Romania
OTP GaranciaAsigurari SA
Number of branches, EoY 2006OBR: 66BCR: 473BRD: 550
0.73
0.220.18
CAGR:101%
2004 2005 2006
Investor Day, April 2007
7
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
János Komorowicz
CFO
• 8 years in the banking sector
• 3 years at OBR
Experienced leadership team is the key for execution of plans
Dr. Antal Pongrácz
Chairman of the Board of Directors
Frigyes Hárshegyi
CEO
László Diósi
Retail
György Bodó
IT & Logistics
• 33 years in the banking sector
• 2 years at OBR
• 12 years in the banking sector
• 2 years at OBR
• 14 years in the banking sector
• 2 years at OBR
OTP Bank Romania
Investor Day, April 2007
8
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
OBR will focus on product innovation, sales network expansion and sales force effectiveness leveraging OTP Bank experience
• Launch new, innovative retail products (mortgage, deposit), develop private banking value proposition
2007 Key actions for OBR
• Sharing experiences and product descriptions (Hungary, Bulgaria)
Help from OTP Group
Mid-term actions
• Further develop asset management and PB value proposition• Develop value proposition for/open towards higher threshold
of SME
• Enhance cross-selling activities for consumer finance
• Expand sales network by upgraded new branch models, countrywide merchant acquisition, enlarged direct sales agent/ partner network
• Step up corporate sales force capabilities, project finance and municipalities cooperation model with OTP Hungary
• Consultation on key success factors (Hungary, Bulgaria)
• Consultation on procedures and best practices (Hungary)
• Revamp project finance operation model, best practice sharing (Hungary)
Investor Day, April 2007
9
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
Based on solid foundations, OTP Bank Romania will deliver superbresults in 2010
P&L and Balance sheet data, EUR billions
2006 2010
0.02 0.16Total revenue afterrisk cost
-0.01 0.07Pre-tax profit
-0.01 0.06After-tax profit
0.38 2.55Total customer loans
0.16 1.43Total customerdeposits
0.10 0.22Equity
0.73 2.89Total assets
Key indicators, %
2006 2010
2.7 4.7Net interest margin
135% 50%C/I
-2.2 2.4After-tax ROA
-14 31After-tax ROE
0.6 1.3Risk cost peraverage loan
22.3 10.0Capital adequacyratio
Main challenges
Execute rigorously • Sales and operational efficiency programs• Keep up pace of retail network development
Investor Day, April 2007
10
OTP Bank RomaniaOTP Bank OTP Bank RomaniaOTP Bank RomaniaOTP Bank RomaniaOTP Bank OTP Bank Romania
* Excluding: sales and trading, asset management** Interest and fees, after risk cost*** Retail deposits & transactions, consumer finance, mortgage, investments and
insurance (only distribution), wholesale banking
Growing market share, high margin levels, sales and operational excellence are the foundations of OBR’s financial success
Pre-tax profit (EUR billions)
0.07
-0.01
2006 2010
Revenues after risk cost (EUR billions)
CAGR: 62%
Market share,%
• Total*** • Retail banking
Margins**,%
• Total
2.02.0
4.4
2006
5.06.0
3.3• Retail banking 4.6 4.0
2010
• Wholesale banking* 1.0 4.0
• Wholesale banking* 4.3 2.0
CAGR: n/a
0.16
0.02
2006 2010
Investor Day, April 2007
Montenegro: Retaining Number 1 position in a fast growing and highly competitive market
Ms. Aleksandra Popovic, Assistant General Director, CKB
Investor Day, April 2007
2
CKB solid foundations for growth
Market
• Stabilizing economy offering exceptional growth potential (21% CAGR 2006–2010)
• Retail lending sector and project financing a key segments of further development
Bank • Leading financial institution with 45% market share• Most advanced products and services on the market
Strategy
& targets
• Retain market share by offering best-in-class products and promoting cross-sales
• EUR 17 million pre-tax profit target in 2010
Investor Day, April 2007
3CKB will deliver EUR 17 million profit in 2010 based on improved sales and product innovation
Aggressive attacker
Attacker Incum-bent
Generalist
Focused
Specialist
Str
ate
gic
positio
nin
g
Market dynamics
2007–2010 strategic objectives
• Exploit incumbent position through
– sales intensification
– product innovation
– leveraging OTP and DSK know-how
Key actions for 2007
• Conduct nationwide sales training
• Introduce retail home equity loans and SME mortgages
• Launch project finance to capture EU funding opportunity
• Develop innovative e-banking services
Pre-tax profit EUR million
17
4
2006
CAGR: 40%
2010E
Investor Day, April 2007
4
Montenegro’s banking market is characterized by fast, retail-focused growth
0.0
2.0
4.0
6.0
8.0
2005 2006 2007 2008 2009 2010
Real GDP growth
Percent, annual
0.0
2.0
4.0
6.0
8.0
2005 2006 2007 2008 2009 2010
Key interest rate
Percent, ECB rate
Montenegro’s banking market – Revenues after risk cost
EUR millions
3145
25
56
2006
75
120
2010E
Retail
Wholesale
CAGR: 21%
Stability and EU-integration ensures unparalleled growth especially in retail
segment
Investor Day, April 2007
5CKB dominates a market fuelled by fast integration into international organizations and high FDI
• Stabilizing economy: EU integration in progress, full World Bank and IMF membership
• High level of foreign direct investment will further stimulate growth in all market segments
• Continuing expansion, especially in project financing, retail lending, insurance
• CKB is the leading player having the most advanced services and 40% of banking market
• New regulation on bank sector including preparation for Basel II
Investor Day, April 2007
6
CKB has shown steady growth over the last years
Total assets of CKB (EUR billions) Branch network of CKB
0.540.30
0.150.090.06
Dec 2002
Dec 2003
Dec 2004
Dec 2005
Dec 2006
• CKB: 34• NLB
Montenegro banka: 22
• Podgorickabanka: 16
Number of branches, EoY 2006
CAGR:72%
Investor Day, April 2007
7
CKB leadership is a strong backbone of future growth
Milka Ljumovic
General Director
Aleksandra Popovic
Assistant General Director
• 40 years in banking sector• General Director since
foundation of CKB in 1997
• 10 years in banking sector • 10 years of CKB
József Windheim
Chairman of the Board of Directors
Bose Tatar
Deputy General Director
• 25 years in banking sector • 10 years of CKB
Investor Day, April 2007
8CKB will focus on reaching full product coverage and enhancing cross-sales by utilizing local and group know-how
• Introduce retail home equity loans and SME mortgages
• Further improve electronic channels, through new e-banking services
• Set up Call Center
• Improve risk management
• Conduct sales training within CKB
• Implement best practices in IT and physical infrastructure
• Further extend CKB network
2007 Key actions for CKB
• Use Group’s product definitions customized to local requirements (Hungary)
• Leverage on sales best practices (Hungary, Bulgaria)
• Develop solution based on Group standards (Hungary)
• Utilize central risk management experience (Hungary)
• Build on group-wide IT best practice (Hungary)
Help from OTP Group
Mid-term actions
• Expand into new markets and market segments
• Prepare insurance as a new product according to new regulations
Investor Day, April 2007
9
Based on solid foundations, CKB will deliver superb results in 2010
Key P&L data, EUR millions
2006 2010
17 35Total revenue afterrisk cost
4 17Pre-tax profit
4 15After-tax profit
323 788Total customer loans
444 895Total customerdeposits
23 79Equity*
548 1,038Total assets
Key indicators, %
2006 2010
1.9 2.2Net interest margin
61 47C/I
0.9 1.6After-tax ROA
19 23After-tax ROE
1.6 0.5Risk cost peraverage loan
12.3 12.2Capital adequacyratio
Main challenges
• Keep up sales effectiveness• Be fast in bringing new products
to market* Shareholder’s equity + subordinated debt
Investor Day, April 2007
10
* Excluding: sales and trading, asset management** Interest and fees, after risk cost*** Retail deposits & transactions, consumer finance, mortgage, investments and
insurance (only distribution), wholesale banking
Limiting market share and margin decrease are the key elements of CKB’s financial success
Pre-tax profit (EUR millions)
174
2006 2010
Revenues after risk cost (EUR millions)
CAGR: 19%
Market share,%
• Total***• Retail banking
Margins**,%
• Total
4541
2.8
2006
3732
2.2• Retail banking 3.3 2.4
2010
• Wholesale banking* 48 40
• Wholesale banking* 2.6 2.0
CAGR: 40%
35
17
2006 2010
OTP Bank Investor Day, April 2007 76
Disclaimer This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and businesses environment of OTP Group based on the management's current views and assumptions. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are plenty of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Forward-looking statements are not guarantees of future performance. Undue reliance should not be placed on these forward-looking statements. Nothing in this announcement should be construed as a profit forecast. We do not intend and do not assume any obligations, to update forward-looking statements set forth herein. This document neither constitutes an offer of securities, nor a solicitation for an offer of securities, or marketing or sales activity for such securities.
OTP Bank Investor Day, April 2007 77
Practical Information Location
Boscolo New York Palace Hotel Budapest, H-1073 Erzsébet krt. 9-11. tel: +36-1-88-66-111 fax: +36-1-88-66-199 e-mail: [email protected]
Conference: Lobby, Ground floor Coffee breaks: White Salon, Ground floor Lunch: Rossini Room, 1st floor
Dinner with Entertainment
Europa Conference Ship Budapest, Buda-side, Szilágyi Dezső tér
Coach departs from the Boscolo New York Palace Hotel at 19:00. Ship departs at 19:30.
Contacts
OTP Bank Investor Relations H-1051 Budapest, Nádor u. 16. tel: +36-1-473-5460 +36-1-473-5457 fax: +36-1-473-5951 E-mail: [email protected] Web: www.otpbank.hu
If you have any problem during your stay in Budapest, please, feel free to contact us:
Sándor Pataki +36-70-70-80-029 Beáta Lendvai +36-70-70-80-527