analysts presentation milan, march 25 th, 2002 “catching the embedded value of the new europe”...
TRANSCRIPT
Analysts Presentation Milan, March 25th, 2002
“Catching the Embedded Value of the New Europe”
UniCredito Italiano
2
GOALS OF THE PRESENTATION
To highlight macroeconomic
developments in the New
Europe, in order to show the
embedded value of the region,
which relies in sustained
economic and banking growth
and decreasing risk
To provide
basic framework
in order to evaluate
UCI-New Europe (NE)
Division
within a sum of parts
valuation approach
3
Executive Summary
UCI continues to profit from its leadership strategy in the New Europe, an area characterised by high growth
potential, decreasing risk and getting closer to the EU
In two decades market positioning in the New Europe will be comparable to that in other EU member countries. For UCI being a leader in the region means high revenue opportunities now and first mover advantage in the future.
UCI New Europe division is increasing its weight on group performance, while an effective operating and governance structure has been developed
Accelerated and sustainable growth, coupled with decreasing risk, represent the embedded value of the New Europe
Economic growth, supported by both infrastructure development and EU convergence process, and increasing banking penetration guarantee high profitability in the next decade, with two digit CAGR in pre tax profits in all countries
Decreasing risk, supported by EU convergence, leads to growing value added, due to contraction in cost of equity
Despite national differences, a positive growth scenario characterizes all UCI operating countries
4
Agenda
UCI and the New Europe
The embedded value of the New Europe
New Europe countries: opportunities and perspectives
Conclusions
5
24.7
392(271 mln Euro pertaining UCI)
* Considering 100% of total assets only for controlled Companies (stake > 50%) and including foreign branches
UCI IS ALREADY LEADER IN TERMS OF PROFITABILITY AND ASSETS IN THE REGION …
100
202
253
162
11.3
18.8
24.8
9.0
Total Assets controlled*bln Euro, 31/12/2000
Total net profitBln Euro, 31/12/2000
Including Zagrebacka
Banka
6
UniBanka*
… WITH WIDESPREAD PRESENCE…
Romania
Warsaw
Bratislava
Zagreb
Sofia
Group Pekao
PolandSlovakia
Zagrebacka Banka
Croatia
Pioneer
Bulbank
Bulgaria
Demirbanka
Romania
* Formerly Pol’nobanka
7
… AND SIGNIFICANT MARKET SHARE
Deposits Retail
Deposits Corporat
e
12.2%
4.8%
18.2%
2.6%
Deposits
16.4%
3.5%
Pekao
Pol’nobanka
Loans Retail
Loans Corporat
e
15.6%
6.6%
12.6%
n.s.
Loans
14.8%
5.6%
Year 2001
Note: Pekao: December. Bulbank, Pol’nobanka: November. Splitska banka: October. Demirbank Romania: innternal estimate. Zagrebacka : June 2001Source: UCI, TdB.
n.a.n.a.0.7%Demirbank Romania n.a.n.a.0.6%
4.9%8.4%7.6%Splitska Banka 5.9%6.0%5.9%
36%Zagrebacka 22%30%25%34%36%
23.9%22.9%23.3%Bulbank 13.1%1.3%10.8%
8
BRILLIANT ECONOMIC RESULTS …
+43% OPERATING INCOME GROWTH (+31% at fixed FX), THANKS TO:
Revenue generation (+21% y/y, +11% at fixed FX) and diversification (Net non Interest Income/Total Revenues 39%,+2.5 p.p. y/y)
Strict cost control (C/I Ratio down by 8 p.p. to 48.9%)
NEW EUROPE BANKING IN 2001: KEY HIGHLIGHTS
… IN A LESS FAVOURABLE THAN EXPECTED 2001 ENVIRONMENT (TO IMPROVE IN 2002)
Economic slowdown in Poland (1,1% real GDP growth in 2001 vs 4.0% in 2000) while growth in other countries remained strong
Strong reduction of Polish interest rates
STRONG PERFORMANCE OF THE DIVISION ALSO PROVEN BY:
Out-performance of Bank PEKAO vs major competitors
Increased contribution of other banks
MORE AND MORE IMPORTANT GROWTH FACTOR FOR UCI Macroeconomic environment sustains accelerated growth Further restructuring opportunities available New acquisition in the pipeline to fuel further growth
CAPITAL GAIN ON SPLITSKA (over Euro 34 mln gross of tax effect with 60% gross return on 1.5 years) PROVIDES TANGIBLE EVIDENCE OF NE STRATEGY
9
Net Interest Income
2000 2001
552
787
1,2751,541
56.7%
48.9%
Operating Income
Total Revenues
Cost/Income
2000 2001
2000 2001
812943
464599
Non Net InterestIncome
2000 2001
2000 2001
+43%
+21%
+16%
-7.8 pp
Mln €
OPERATING INCOME UP 43% Y/Y AND NET INCOME GROWTH AT +53% Y/Y (+31% AND +42% AT END 2000 FX RESPECTIVELY)
+31%
+11%
+6%
+29%
+18%
-2.400 HEADCOUNT VS 2000: Implementation of outsourcing opportunities Incentives to exits, management of turnovers
STRICT COST CONTROL Tight procurement, centralised purchasing Real estate restructuring Full scope contract renegotiation
At end 2001 FX
At end of period FX**
VOLUMES GROWTH*: Gross Customer Loans:
+17,3% yoy Customer Deposits: +16,6%
yoy COMMERCIAL ACTIONS:
Active and rapid Repricing Increased sales productivity
NEW VALUE ADDED PRODUCTS INTRODUCED
Structured CD Asset Management products Credit Cards and Payment
Services
* Calculated on end of period data.** Exchange ratio at 31 December.
10
NEW EUROPE BANKING NET INCOME – UCI’s PORTION: EURO 227.3 mln (+35% y/y)
SPLITSKA 5% (Euro 10.9 mln)
BULBANK 14%(Euro 30.9 mln)
INCREASED CONTRIBUTION TO DIVISION’S NET INCOME FROM BULBANK, SPLITSKA, AND POL’NOBANKA THANKS TO RESTRUCTURING
* At Unchanged FX.** For 2000 Bulbank Net Profit net of € 79 mln (pre tax) extraordinary income from UBB disposal
GROUP PEKAO 80% (Euro 183.3 mln)
POL’NOBANKA 1% (Euro 2.2 mln)
Total Division
Net Income – % y/y growth*
ROE, %
Splitska Pol’no Banka
Group Pekao
Bulbank
n.s.
9.0
+175
23.8
+80 (2)
14.722.2
+53
C/I Ratio, % 68.248.045.948.7
C/I Ratio – point perc. Change ‘00 -13.7-6.9-5.2-7.9
+81 **
21.1
48.9
-7.8
ROE – point perc. Change ‘00 n.s.+13.5+6.6 (2) +2.6 +5.5 **
RARORAC, % 1.817.929.723.5 17.7
11
OVERALL ASSET QUALITY PRESERVED DESPITE ECONOMIC SLOWDOWN IN POLAND THANKS TO PEKAO’S SELECTIVE LENDING POLICY AND EFFECTIVE RECOVERY ACTIONS
% change
(Fixed FX)2000
(1) Total loan loss provisions /Total gross loans(2) Total specific provisions for doubtful loans/ Total gross doubtful loans(3) Internal estimate based on Pekao’s current portfolio situation(4) Due to restrictive Polish regulation based on financial ratios and risky sectors
2001
WE ARE PROMPTLY REACTING THROUGH:
Conservative lending policy Implementation of new lending rules and procedures and active monitoring Effective recovery actions
KEY HIGHLIGHTS
Coverage ratios
-on total gross loans (%) (1)
-on total gross doubtful loans (%) (2)
+0.7
-3.3
9.7
59.4
10.4
56.1
Good coverage ratios, although negatively impacted by write-offs
Volumes
Total gross loans 9,845 +7.411,552
Gross NPL 916 +25.41,241
Gross NPL/total gross loans (%)
Net NPL/total net loans (%)
9.3 +1.4
1.4 +1.0
10.7
2.4
Selective and conservative lending policies
Deterioration of asset quality mainly due to the economic slowdown in Poland in 2001
Approximately 25%(3) of Doubtful Loans with no payment delays(4)
Mln €
12
NEW EUROPE BANKING: RESULTS BREAKDOWN BY BANK
(1) Balance due to roundings and elisions (2) IAS, calculation based on an estimated share acquired (*) Writeback
New perimeter: excluding Splitska
and including Zagrebacka
Mln €
Interest margin (incl. div.)
Net non interest income
Total revenues
Operating costs (incl. dep.)
Net operating income
Net income
ROE
Cost/income(excl. goodwill dep.)
POL’NO BANKA (72,4%)
Group PEKAO (53,2%)
823 21
13
34
23
11
3
9.0%
68.2%
545
1 368
666
702
22.2%
48.7%
353
Net loan loss provisions 5174
UCI stake
Net income (UCI’s portion) 2.2183.3
BULBANK (85,2%)
51
23
74
34
40
14.7%
45.9%
6*
36
30.9
47
18
65
31
34
18
23,8%
48,0%
12
10,9
SPLITSKA BANKA (62,6%)
TOTAL (1)
942
599
1 541754
787
410
21,1%
48,9%
185
227,3
TOTAL
ZAGRE-BACKA BANKA Group
(85%(2))
206 1 101
740
1 841
972
869
455
52.8%
159
365
249
116
63
13.5%
68.2%
20422
27053.6
19.5%
13
THE NEW EUROPE DIVISION IS INCREASING ITS WEIGHT ON UCI GROUP…
2001
% RARORAC
Revenues (% of UCI)
17.7%**
17.9%*
Net Income (% of UCI) 18.0%*
Amount invested (mln €) 1,570 • New Europe carries a significant
increasing weight on Group
performance
• Weight increasing as result of
restructuring and new investments
• RARORAC above Group level
• A very significant EVA contribution
* Including Zagrebacka, excluding Splitskabanka (at 2001 perimeter: net income = 15.6% , revenues = 15.4%).
** UCI Group RARORAC = 9.97%.
14
... WHILE AN EFFECTIVE ORGANISATION MODEL HAS BEEN ADOPTED
Homogenous region:
• Countries with similar
dynamics (but different life-
cycles)
• Converging regulation (EU
convergence)
Opportunity
• Similar segment strategies (respecting single country differences and single banks position)
• Same business models and target information systems
• Economies of scale (ex. card processing, single purchase center) and product (ex. Pioneer)
• Strong P&C
Strategy and organization model
15
Cars & Pilots Mechanical support
A UNIQUE TECNOLOGY FOR DIFFERENT OUTSTANDING MODELS
16
cars & pilots
with local
pilots and
UCI co-
pilots *
WHAT DO THE BANKS DO
• Keep relationships with local Public Institutions
• Define commercial policies
• Manage daily operativity
• Devise credit policies
• Implement investment policy and credit strategies
approved by the Supervisory Board
LOCAL BANKS: DIRECT MANAGEMENT RESPONSABILITY/ACCOUNTABILITY
* Mainly but not exclusively on controlling functions.
17
Mechanical support
WHAT DOES THE HOLDING DO
Strategy & Control• Strategic guidelines• Performance budgeting & controlling• Risk budgeting & controlling• Audit
Support in development of:
• Products (retail/corporate)
• Operation & Process (credit risk,…)• IT & Systems• HR training• Centralized production (ex. card processing, asset
management,…)
HOLDING: STRATEGIC GUIDANCE AND BUSINESS SUPPORT
18
Agenda
UCI and the New Europe
The embedded value of the New Europe
Accelerated and sustainable growth
Decreasing risk
New Europe countries: opportunities and perspectives
Conclusions
19
WHAT DO WE CONSIDER NEW EUROPE?A REGION INCLUDING 10 EU ACCESSION COUNTRIES PLUS CROATIA
Year 2001New
Europe EU
Population, mln
GDP, bln €
Per Capita GDP, €
108
496
4,595
377
9,006
23,885
Source: Datastream and EIU.
Slovenia
SlovakiaWarsaw
Prague
Bratislava
Budapest
BucharestLubjana Zagreb
Sofia
Tallinn
Riga
Vilnius
Estonia
Czech Rep.
Poland
Hungary
Latvia
Lithuania
Bulgaria
Croatia
Romania
20
WHY NEW EUROPE? PERSPECTIVE ENTRY INTO EU AND EMU GUARANTEES A PREDETERMINED CONVERGENCE PATH
Phase 1: pre-accession
Phase 2: EU membership
No Euro adoption
Phase 3: full EMU
membership
Accession negotiations
Ratification(18 months)
ERM II Upon fulfillment of
Maastricht criteria (min 2 years) – no opting out
Poland, Slovakia, Hungary,3 Baltics, Czech R.,
Slovenia
EU entry
Bulgaria,Romania and
Croatia2007
2004
EMU entry
T Min T+2
21
SUSTAINABLE, HIGH GROWTH AND A DECREASING LEVEL OF RISK REPRESENT THE “EMBEDDED VALUE” OF THE NEW EUROPE
Accelerated and sustainable growth
Decreasing level of risk Cost of equity
Bank revenues and
profitability
22
UCI and the New Europe
The embedded value of the New Europe
Accelerated and sustainable growthEconomic growth Banking growth
Decreasing risk
New Europe countries: opportunities and perspectives
Conclusions
Agenda
23
ACCELERATED AND SUSTAINABLE GROWTH DRIVEN BY SIGNIFICANT MACROECONOMIC DEVELOPMENT AND INCREASING BANKING PENETRATION
Existing economic development gap suggests opportunities of high and sustainable growth, with real GDP growth rates well above EU standards for the next two decades
Post convergence experience (Spain, Portugal, Ireland) and structural reasons, support reliability/credibility of accelerated growth expectations in NE
Positive economic scenario and wide scope for increasing banking penetration suggest a dynamic growth scenario for banking revenues, with two digit CAGR for the next decade
24
UCI and the New Europe
The embedded value of the New Europe
Accelerated and sustainable growthEconomic growth Banking growth
Decreasing risk
New Europe countries: opportunities and perspectives
Conclusions
Agenda
25
NE growth rate (past and expected) well above EU and USA
Current gap in per capita income between EU and NECs (New Europe Countries) suggests a continued more dynamic growth
Source. Per capita GDP in PPP: EU Commission estimates, 2000. Real GDP growth: UCI- FBD Research Team and UBM.
CATCHING UP PROCESS TOWARDS THE EU SUGGESTS A LONG PERIOD OF FAST AND SUSTAINABLE GROWTH
Gap in 2000 per capita GDP in PPP
24
72
100
0
20
40
60
80
100
EU 15 Slovenia (highest)
Bulgaria (lowest)
Real GDP growth
0%
2%
4%
6%
2000 2001
NE Eurozone USA
26
PAST EXPERIENCES OF EU ENLARGEMENT ADDRESS TO IRELAND, SPAIN, AND PORTUGAL AS SUCCESS ROLE MODELS
Average Growth 1986/01
EU
IE+SP+POR 4.2%
2.1%
Source: University of Groningen database.
The experience of past EU enlargement processes shows that catching up implies decades of average growth above EU standards
Spain, Portugal, and Ireland experienced for 20 years growth by 2/3% point higher, compared to the EU
Per capita GDP in PPP
5,000
8,000
11,000
14,000
17,000
20,000
1971 1981 1991 2001
27
IN 20 YEARS OPERATING ENVIRONMENT OF NECs WILL BE EQUIPARABLE TO OTHER EU MARKETS
NECs should approach the average of 3 least developed EU countries (Portugal, Greece and Spain) by 2020…
… with two decades of growth rates 2%/3% higher than EU levels
Estimated time for convergence to EU per capita GDP in PPP
Note: Consensus on average years to convergence forecasted by different growth models (Barro model and Levine- Renelt model in Fisher et al (1998) and EU commission convergence model (2001). EU standards are based upon per capita GDP of the three low income EU members, Portugal, Spain and Greece, with convergence income representing 75% of EU’s per capita GDP. Results of different models are similar, with the exception of Slovenia, where the EU Commission forecasts 1 year to convergence.
12 - 13 Y
14 - 15 Y
22 Y
27 - 32 Y
0 10 20 30
CR,SLOVE
EST,SLOVA,
HUN
POL, LAT
BUL,LITH,ROM
28
STRUCTURAL REASONS FOR GROWTH ARE RELATED TO THE NATURE OF NECs AS TRANSITION ECONOMIES, SIGNIFICANTLY DIVERGING FROM EMERGING MARKETS
EXISTING SKILLS AND
INFRASTRUCTURE
EU ACCESSIONPROCESS
• Pre-determined path of convergence and forced structural reform process
• Harmonisation of legal and regulatory framework
• Integration and liberalisation of markets
• EU financial support for convergence
• Existence of industrial assets
• Developed infrastructures
• Skilled labour force and availability of human capital
• Historical linkages with EU countries
29
NEW EUROPE ECONOMIC GROWTH CAN BE ANALIZED BOTH ON PRODUCTION AND DEMAND SIDE
PRODUCTIONPRODUCTION
DEMANDDEMAND ECONOMIC ECONOMIC
GROWTHGROWTH
30
ON THE PRODUCTION SIDE, DRIVERS OF GROWTH ARE MAINLY RELATED TO PRODUCTIVITY GAINS AND CAPITAL (INVESTMENT INFLOW)
PRODUCTION SIDE
Productivity gains- privatisation and restructuring-Foreign Direct Investment -- skilled work force- competitive challenge of EU market
Capital- Foreign direct investment- EU structural funds- availability of domestic invest. /saving
Labour- low cost of labour- limited wage pressures, due to unemployment
Factors leading
to growth
Structural reasons for growth
Relevance*
* Contribution to 2000-2009 growth in 10 CEE candidates for EU enlargement. Source: EU Commission estimates.
47%
38%
15%
31
FDI provide a positive contribution to the catching up process: enhancing structural transformation, thus boosting capital
and labour productivity sustaining productive investment, with consequent positive
impact on export
* Average of single countries’ ratio, weighted with nominal GDP.Source. FDI flows: Transition Report 2001, EBRD. Stock of FDI: UNCTAD, 1999. GDP: EIU forecasts.
SUSTAINED AND INCREASING INFLOW OF FDI SUPPORTS HIGHER CONTRIBUTION OF CAPITAL TO GROWTH AND INCREASES IN PRODUCTIVITY
PRODUCTION SIDE
FDI inflows, mln USD
0
6000
12000
18000
24000
1994 1998 2001
Stock of FDI over GDP *
8%10%
12%14%
16%
NECs LA Asia
32
NECs productivity growing at twice the speed of EU
Gap in productivity levels leading to higher productivity growth in
the future, further enhanced by entry into the EU market (free
movement of resources, transfer of technology, and
homogenisation of market conditions)
* Austria taken as reference country for EU. ** Czech Republic, Hungary, Poland and Slovakia.Source. Productivity gap: WIIW, 1999. Productivity growth: WIIW 1999, average of 4 NECs.
NECs PRODUCTIVITY INCREASING AT DOUBLE THE SPEED OF EU WITH STRONG SCOPE FOR FURTHER GROWTH
PRODUCTION SIDE
Gap in average productivity level between NECs and EU*
100
23
0
20
40
60
80
100
EU* NECs (avg.)
Grow th rate in manufacturing productivity 1993-99
4%
9%
0%
4%
8%
12%
EU NECs**
33
Low labour cost sustains competitive advantages, compared to the EU
Persisting unemployment guarantees low salary pressures, supporting real rather than nominal convergence
Note: NECs cost of labour is a simple average. Source: EIU forecasts, 2001.
UNEMPLOYMENT, DETERMINED BY RESTRUCTURING AND PRODUCTIVITY GAINS, AVOIDS RISK OF STRONG SALARY PRESSURES
PRODUCTION SIDE
Labour cost per hour, USD
11%
100%
0%
50%
100%
Italy
NE
Cs
Unemployment rate
8%
13%
0%
4%
8%
12%
16%
EU NECs
34
ON THE DEMAND SIDE , INTERNAL DEMAND RATHER THAN EXPORT IS DRIVING NE GROWTH, MAKING GROWTH LESS VULNERABLE TO THE INTERNATIONAL ENVIRONMENT
Factors leading
to growth
Key factors for internal
demand growth
Key factors for export
growth
DEMAND SIDE
Gap in life-style
Increase disposable income
Investment and FDI
EU structural funds
Selected comparative advant.
Cost of labour
Full liberalisation of markets
Structural reasons
for growth
Relevance for 2002-04
Inte
rnal led
g
row
th
35
GAP IN LIFE STILE IS EXPECTED TO SHRINK WITH INCREASING MOVEMENT OF LABOUR, FREEDOM OF SETTLEMENT, ETC.
* Income plus transfers, minus taxes.** Households spending in tourism and restaurants. Note: NECs is weighted average of Poland, Slovakia, Romania, Bulgaria.Source: EIU.
Gap in Personal Disposable Income per head USD *
2,442
13,093
Italy NECs
% Food on Household Spending
14.1%
27.2%
Italy NECs
% Leisure on Household Spending
8.3%
14.0%
Italy NECs
Mobile per 100 population
88.8%
21.4%
Italy NECs
Internet users per 100 population
37.5%
10.2%
Italy NECs
Housing stock per 1000 population
339402
Italy NECs
DEMAND SIDE
36
UCI and the New Europe
The embedded value of the New Europe
Accelerated and sustainable growthEconomic growth Banking growth
Decreasing risk
New Europe countries: opportunities and perspectives
Conclusions
Agenda
37
Despite convergence and
increasing competition, high
growth opportunities in terms of pre tax
revenues are expected
SUSTAINED GROWTH SCENARIO IS DETECTED IN TERMS OF PRE TAX BANKING PROFITS, WITH TWO DIGIT CAGR IN THE NEXT DECADE
Note: 10 Year macroeconomic assumption from Oxford Economic Forecasting.Source: UCI - FBD Research Team, simulated model for NECs data.
Potential for Pre tax profit growth(simul. 2001-10 CAGR for NECs)
21%
17%
24%
15%
0%
10%
20%
30%
Poland Slovakia Bulgaria Croatia
38
POSITIVE PERSPECTIVES ARE EVIDENT ALSO COMPARED TO WHAT HAPPENED IN ITALY IN THE LAST 5 YEARS (EMU CONVERGENCE PERIOD)
In the NE volume effect to offset contraction in spread, supporting NIM growth...
… with significant increases in fees generation, although lower than in Italy in 1996-01…
… and decreasing credit risk
Source: UCI - FBD Research Team, simulated model for NECs data. 10 Year macroeconomic assumption for OEF. Data for Italy, Prometeia
Net Interest Margin CAGR
12.6%7.3%
Loans+Deposits, CAGR
17.7%
Non Interest Margin CAGR
ItalyNew
Europe
Italy
0.8% (down from
1.5)
Provisions/Loans
NewEurope
Operating Costs CAGR
3.1%
Italy
2.9%
NewEurope
Total Net Revenues CAGR
NewEuropeItaly
10.0%
0.4%
Italy NewEurope
6.0%
Italy NewEurope
7.9%6.5%
1.0% (down from
2.0)
39
GROWTH OPPORTUNITIES ARE RELATED TO RELATIVELY LOW BANKING PENETRATION, …
Significant banking growth potential driven by: gap towards EU penetration levels, low levels in absolute terms, NECs economic growth
Per capita GDP (‘000 USD)
LATBULITRO
ESTHUPOL
CRSK
SLO
EU
0%
50%
100%
150%
200%
250%
300%
0 5 10 15 20 25
(Loan
s+
Dep
osit
s)/
GD
P
Source: UCI on National Central Banks and FBD Research Team’s projections.
Banking penetration rise -Total Assets / GDP-
53% 63% 69%
0
200
400
600
1995 2000 2003
GDPTA
40
Significant scope for growth in banking penetration and increase in fees generation
Lower cost of labour, but higher cost of risk
… AND TO PERSISTING DIFFERENCES IN DOING BANKING IN NE AND EU COUNTRIE, CREATING SCOPE FOR FURTHER DEVELOPMENTS
Share loans retail over total loans
94%
337%
(Loans+Deposits)/ GDP
862
Cards per ths inhabitants
EUNew
EuropeNew
EuropeEU
248
53%
EU NewEurope
28%
Note: Top line: comparisons between banking sector data in 4 UCI NECs countries and EU aggregate, 2000. Bottom line: comparisons between data for UCI Italian banks and UCI New Europe Banks, 2001.Source: National Central Banks and UCI.
10.7%
Italian Banks
2.6%
UCI’s ‘01 Gross NPL/Gross Loans
NewEurope Banks
UCI’s ‘01 Average Cost per employee (Euro ths)
16.6
Italian Banks
58.5
NewEurope Banks
39%49%
UCI’s ‘01 Non interest income/Total Income
Italian Banks
NewEurope Banks
41
Agenda
UCI and the New Europe
The embedded value of the New Europe
Accelerated and sustainable growth
Decreasing risk
New Europe countries: opportunities and perspectives
Conclusions
42
RISK IN THE NEW EUROPE IS THE LOWEST AMONG EMERGING MARKET REGIONS
Commitment to structural reforms guarantees low and decreasing risk, confirmed also in terms of
spread over EU bonds**
* Asia is defined as Indonesia, Malaysia, Thailand, Korea, Philippines. ** Spread over Eurobond is based upon SUEMI: Sole24Ore UBM Emerging Market Index, for Euro-denominated high-yield benchmark (total returns traded sovereign debt instruments in Euro with fixed interest rate, 76 sovereign bonds for 22 countries and a market capitalisation of EUR 36 bln). Source: S&P’s database and UBM Research.
S&P's Country Rating
BBB-
BB-BB
BBB
B
BBB-
ASIA* MERCOSUR NE
1998 2001
Country spread over Eurobond 21st February, 2001
296
480763
0
300
600
900
Global Latin New Europe
43
HIGHER STABILITY EMERGES AT BOTH BANKING SYSTEM AND OVERALL ECONOMY LEVEL, WHEN COMPARED TO OTHER EMERGING MARKETS
Colombia
Poland
Estonia
Chile
Malaysia
Philipp.
Argentina
Korea
Taiw an
Peru
India
BrazilHungary
Thailand
Indonesia
Romania
Venezuela
Slovenia
Mexico
Slovakia
Czech R
44
DECREASING RISK LEADS TO GROWING VALUE ADDED , DUE TO CONTRACTION IN COST OF EQUITY
Decreasing
Risk
Decreasing
Risk
Decreasing
Interest
rates
Decreasing
Interest
rates
Cost of
equity
Cost of
equity
The combined decrease of risk and interest rates will impact significantly on the Cost of Equity for the Group, allowing a steep increase in
value creation
EU convergenceEU convergence
45
IN SUMMARY, THE EMBEDDED VALUE OF THE NEW EUROPE IS RELATED TO ACCELERATED AND SUSTAINABLE GROWTH, WITH LOW AND DECREASING LEVEL OF RISK
The catching up process supports accelerated growth for the next
decade, up to convergence to EU standards
In 2020 being leader in NE will be comparable to equal positioning
in other EU markets
Structural reasons for growth are related to productivity gains and
FDI on the production side, while internal rather than external
demand will be the engine of growth on the demand side
Economic opportunities reflect in banking growth, with two digits
CAGR in terms of pre-tax profits
Decreasing risk leads to growing value added, due to contraction in
cost of equity
46
UCI and the New Europe
The embedded value of the New Europe
New Europe countries: opportunities and perspectivesPolandSlovakiaCroatiaBulgariaRomania
Conclusions
Agenda
47
HIGLY ATTRACTIVE INTERNAL MARKET AND STABLE ENVIRONMENT, DESPITE ECONOMIC SLOWDOWN, WITH RECOVERY EXPECTD AFTER MID 2002
• After seven years (1994-2000) of GDP growth exceeding 4%, significant slowdown has been observed and growth in 2001 dropped to 1.1% due to weakening demand abroad and collapse in domestic investment activity
• There is no chance for sharp acceleration of economic growth in 2002 – GDP growth will stay at around 1.5 %
• Reduction in growth rate was accompanied by significant improvement in macroeconomic equilibrium: 12-month inflation dropped to 3.5 % in February 2002 and current account deficit remains below 4% of GDP
• Monetary policy remains relatively tough, with short-term nominal interest rates kept around 10%
ENGINES OF GROWTH
SIGNALS TO MONITOR
• Zloty likely to remain above its long term equilibrium level
• State budget policy faces difficult challenges, but budget deficit remains under control Budget deficit in 2002 shouldn’t exceed 40 bln Zloty (5.2% of GDP) and expenditure cap (inflation +1%) to be observed starting from 2003
Source: Pekao Macroeconomic Research Office and UCI – FBD Research Team
Real GDP growth
1.1% 1.5%
3.2%4.3%4.0%
0.0%
2.0%
4.0%
2000 2001 2002 2003 2004
48 Source: Pekao, Macroeconomic Research Office
The cash current account deficit shrunk to 3.9 % of GDP in 2001 as a whole
Lower prices of imported energy (oil) and a jump in unclassified turnovers accounted for most of the recent improvement
STABILISING CURRENT ACCOUNT DEFICIT,…
-704
0
-739
9
-739
6
-741
2
-769
9
-830
9
-871
5
-862
9
-830
2
-863
3
-922
8
-972
7
-997
8
-107
51
-114
55
-114
49
-120
10
-118
29
-122
06
-124
83
-127
54
-128
41
-123
28
-118
79
-115
69
-16000.0
-14000.0
-12000.0
-10000.0
-8000.0
-6000.0
-4000.0
-2000.0
0.0
XII
-99
I-20
00 II III
IV V VI
VII
VII
I IX X XI
XII
I-20
01 II III
IV V VI
VII
VII
I IX X XI
XII
mln
USD
49
LOMARD RATE, REDISCOUNT RATE, INTERVETION RATEAND CONSUMER INFLATION RATE
Source: Pekao, Macroeconomic Research Office
Lower prices of food and imported energy slowed 12-month consumer inflation to 3,5 % by January 2002
The monetary policy council reacted adequately
…AND LOW INFLATION ALLOWED AN EXPANSIONARY MONETARY POLICY, SUPPORTING ECONOMIC RECOVERY
17.0
18.519.5
21.021.5
23.0
20.5
17.0
13.5
15.5
21.5
17.0
18.0
19.520.0
15.5
19.0
15.5
12.0
14.0
19.0
17.0
15.514.5
17.5
13.0
16.5
14.013.0
10.0
11.5
3.53.6
11.6
8.5
10.3
6.3
6.26.9
6.2
7.4
6.9
5.24.3
10.7
10.29.810.1
6.5
5.6
3.4
8.4
13.4
18.4
23.4
28.4I-
99r. II III
IV V VI
VII
VII
I
IX X XI
XII
I-20
00r II III
IV V VI
VII
VII
I
IX X XI
XII
I-20
01 II III
IV V VI
VII
VII
I
IX X XI
XII
I-20
02
%
Lombard rate Rediscount rate Intervention rate Consumer inflation rate
50 Source: Pekao, Macroeconomic Research Office
GROWTH IN REAL GDP SLOWED DUE TO WEAK DEMAND ABROAD AND DECREASE IN FIXED INVESTMENT
GROSS DOMESTI C PRODUCT(% change, yoy)
4.8
6.0
7.0
4.1 4.0
1.11.5
6.8
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.019
95
1996
1997
1998
1999
2000
2001
*
2002
*
%
51
EXPORTS VOLUME AND DYNAMIC OF EXPORTS
Source: Pekao, Macroeconomic Research Office
EXPORT VOLUMES REMAINED HIGH BUT DYNAMIC OF EXPORTS DECREASED DUE TO WEAK DEMAND ABROAD
6323
6835
7167
79317436
7508 74597879
90.2
99.3
104.1
109.8
117.6116115.3
108.8
1900
2900
3900
4900
5900
6900
7900
8900
IQ-2000 IIQ IIIQ IVQ IQ-2001 IIQ IIIQ IVQ
mln
US
D
80
85
90
95
100
105
110
115
120
%%
52
REAL GROWTH OF INDIVIDUAL CONSUMPTION AND GROSS FIXED CAPITAL FORMATION
(average yearly prices of previous year ;corresponding quarter of previous year)
Source: Pekao, Macroeconomic Research Office
LARGE CUTS IN FIXED INVESTMENT BY COMPANIES ACCOUNTED FOR MOST OF THE DECREASE IN DOMESTIC DEMAND
105.6
102.8
102.0 102.1
101.5
91.6
86.4
82,9*
104.8
103.3102.1101.6101.5
101.6101.1
103.0
80
85
90
95
100
105
110
IQ-2000 IIQ IIIQ IVQ IQ-2001 IIQ IIIQ IVQ
%%
53
GROSS DOMESTIC PRODUCT (% change; corresponding quarter of previous year)
Source: Pekao, Macroeconomic Research Office
THE GDP GROWTH IN THE FIRST HALF OF 2002 IS LIKELY TO REMAIN WEAK, WITH SOME ACCELERATION POSSIBLE IN THE SECOND HALF OF 2002
2.3
0.9 0.80.4 0.3 0.5
1.9
3.2
0
1
2
3
4
5
20
01
QI
20
01
QII
20
01
QII
I
20
01
QIV
20
02
QI
20
02
QII
20
02
QII
I
20
02
QIV
%
54
REDSICOUNT RATE AND PRICE INDICES OF CONSUMER GOODS AND SERVICES
( corresponding month of previous year)
Source: Pekao, Macroeconomic Research Office
Interest rates are likely to be reduced another 100 - 150 basis points in early 2002
Twelve-month inflation could increase modestly by fall 2002
WITH A FURTHER EXPECTED CUT IN INTEREST RATES
*forecast
4.3
4.0
6.26.6
9.9
6.6
8.5
3.6 3.5
4.3
4.1
3.7
4.0
10.7
4.2
5.34.4
18.019.5
21.5
14.0
12.0
17.0
11.011.0
-10123456789
10111213141516171819202122
VII
I-00 IX X X
I
XII
I-20
01 II III
IV V VI
VII
VII
I
IX X XI
XII
I-20
02 II*
III*
IV*
V*
VI*
VII
*
VII
I*
IX*
X*
XI*
XII
*
%
55
STATE BUDGET DEFICIT (% GDP)
Source: Pekao, Macroeconomic Research Office
THE STATE BUDGET DEFICIT WILL REMAIN LITTLE CHANGED BETWEEN 2001 - 2003
-2.4-2 -2.2
-4.5-4.1
-5.2-6
-5
-4
-3
-2
-1
0
19
98
19
99
20
00
20
01
20
02
*
20
03
*
%
56
BANKING GROWTH OPPORTUNITIES RELATED TO EXPLOITATION OF NEW SEGMENT OF THE MARKET AND TO DEVELOPMENT OF NON TRADITIONAL BANKING OPERATIONS
Stable and increasingly
sophisticated banking sector
Opportunities related to entry in
new segments (i.e. SMEs and
affluent)
Sustained growth potential in the
non traditional banking market
(AuM, etc.), providing a
considerable contribution to
banking revenues growth, also in
view of bank interest spread
contraction
Forecasts: loans and deposits growth
Source: Pekao Macroeconomic Research Office and UCI – FBD.
Forecasts: banking interest rates and spread
0%
5%
10%
15%
20%
2000 2001 2002 2003 2004
Nominal GDP Deposit Loan
7.0
10.5
14.0
17.5
21.0
1999 2000 2001 2002 2003 2004
6.0
6.5
7.0
7.5
8.0
spread - RH scale wibor 3M
loans deposit
57
UCI and the New Europe
The embedded value of the New Europe
New Europe countries: opportunities and perspectivesPolandSlovakiaCroatiaBulgariaRomania
Conclusions
Agenda
58
STABLE AND GROWING MARKET, WITH HIGH POTENTIAL IN VIEW OF ECONOMIC AND INCOME CONVERGENCE TOWARDS THE EU
• FDI fuelled by privatisation of utilities, while restructuring leads to increased investment
• High per capita income compared to the other NECs and progressive increase of people in high income groups, with positive impact on private consumption
• Commitment to structural reforms and EU accession in 2004
SIGNALS TO MONITOR
• Potential political instability and outcome of end 2002 elections
• Fiscal sustainability, in view of restructuring expenses
• Restructuring of large companies and utilities
Source: UCI – FBD Research Team and Polnobanka.
ENGINES OF GROWTH
Real GDP growth
2.2%
3.8% 4.0% 3.7%3.3%
0%
2%
4%
2000 2001 2002 2003 2004
59
BANKING POTENTIAL RELATED TO GROWTH OF VOLUMES, DEVELOPMENT OF NON TRADITIONAL BANKING AND EASING OF CREDIT QUALITY PROBLEMS
• We expect a gradual recovery of loan
growth, with pick up after 2003
• Considerable growth in volumes
outpaces negative impact on income
due to reducing spread
• NPL phenomenon (23.2% in 2001) is a
stock rather than a flow problem
• Development of indirect fundraising to
strengthen in view of 2004 pension fund
reform
Note: 2000 and 2001 data are influenced by the recapitalisation intervention on large banks.
Source: UCI – FBD Research Team and Polnobanka.
F o r e c a s t s : b a n k i n g i n t e r e s t r a t e s a n d s p r e a d0.0
4.0
8.0
12.0
2000 2001 2002 2003 2004
2.0
3.0
4.0
5.0
Spread Interbank rate eopLending rate Deposit rate
60
Agenda
UCI and the New Europe
The embedded value of the New Europe
New Europe countries: opportunities and perspectivesPolandSlovakiaCroatiaBulgariaRomania
Conclusions
61
SPEED UP OF REFORMS AND CONVERGENCE PROCESS IN VIEW OF THE NEW STABILISATION AND ASSOCIATION AGREEMENT WITH THE EU
• Internal led growth with potential for future NX recovery, due to trade liberalisation with the EU
• Following SAA, possible fast track of convergence to the EU, with entry possible after 2007/08
• Full international support (EU SAA signed and IMF stand by agreement)
• Low inflation, decreasing interest rates (still volatile)
ENGINES OF GROWTH
SIGNALS TO MONITOR
• Fiscal sustainability is a key factor for international credibility
• Exchange rate depreciation with potential negative effects on the banking system, in view of high exposure in FX
Source: UCI – FBD Research Team and Splitska
Real GDP growth
4.0%
2.9%
3.5%
4.0%
3.7%
2.0%
3.0%
4.0%
2000 2001 2002 2003 2004
62
0.0
4.0
8.0
12.0
2000 2001 2002 2003 2004
Spread Interbank rate eopLending rate Deposit rate
IN BANKING, DECREASING SPREAD IN VIEW OF ENHANCED COMPETITION, WHILE VOLUME EXPANSION CONTINUE TO REMAIN SUSTAINED
• Lending and deposit growth
continues to outpace economic
development
• Lending expansion is related to an
easing operating environment and
development of new segments of the
market
• Gradual contraction in the interest
rate spread, mainly due to decreasing
lending rates
Forecasts: loans and deposits growth
Forecasts: banking interest rates and spread
Source: UCI – FBD Research Team and Splitska
63
Agenda
UCI and the New Europe
The embedded value of the New Europe
New Europe countries: opportunities and perspectivesPolandSlovakiaCroatiaBulgariaRomania
Conclusions
64
DYNAMIC ECONOMIC GROWTH, WITH A STABLE SCENARIO, IN VIEW OF STRONG COMMITMENT TO EU REFORMS
• Growth supported by large gap and speeding up of reforms, through restructuring of enterprise sector
• Commitment to EU guarantees sustainability of the Currency Board and advancement of structural reforms
• Development of small wealthy group
• Inflow of FDI
ENGINES OF GROWTH
SIGNALS TO MONITOR
• Increases in government deficit endangering Currency Board sustainability
• Increase in debt service payment ratio
• Delays in market liberalisation and EU commitment
Source: UCI – FBD Research Team and Bulbank
Real GDP growth
4.9%
3.7%
4.8%4.5%
5.8%
3.0%
4.0%
5.0%
6.0%
2000 2001 2002 2003 2004
65
BANKING POTENTIAL EXPRESSED BY HIGHLY DYNAMIC LENDING AND DEPOSIT GROWTH, COUPLED WITH CONTRACTION IN NPLs, SUSTAINS PROFITABILITY DESPITE SPREAD REDUCTION
• Volume effect partially
counterbalances spread
contraction, in terms of NIM
• Gradual and continues increase in
lending activities as a consequence
of exploitation of market
opportunities, still with strong
control of risk
• Decreasing non performing loans
Forecasts: loans and deposits growth
Source: UCI – FBD Research Team and Bulbank
0.0
4.0
8.0
12.0
16.0
2000 2001 2002 2003 2004
Spread Interbank rate eopLending rate Deposit rate
66
Agenda
UCI and the New Europe
The embedded value of the New Europe
New Europe countries: opportunities and perspectivesPolandSlovakiaCroatiaBulgariaRomania
Conclusions
67
FOR THE FIRST TIME, IMPORTANT SIGNALS OF COMMITMENT TO REFORMS SUPPORT OPTIMISTIC VIEW FOR FUTURE DEVELOPMENTS
• Strong commitment to deeply reform the country, both in financial and real sectors
• Large gap in income standards and productivity levels to match
• Investment growth and productivity development as a consequence of industrial restructuring and privatisation
ENGINES OF GROWTH
SIGNALS TO MONITOR
• A tighter fiscal policy is required to reduce inflation, in pair with a deep reform of the labour market
• Interest rates are still widely above EU levels despite reducing
• The restructuring process will put public debt under pressure, jeopardizing fiscal sustainability
Source: UCI – FBD Research Team and EIU
Real GDP growth
3.5%4.2% 4.3%
1.6%
4.5%
1.0%
2.0%
3.0%
4.0%
5.0%
2000 2001 2002 2003 2004
68
Agenda
UCI and the New Europe
The embedded value of the New Europe
New Europe countries: opportunities and perspectives
Conclusions
69
CONCLUSIONS
In two decades market positioning in the New Europe will be comparable to that in other EU member countries. For UCI being a leader in the region means high revenue opportunities now and first mover advantage in the future
Accelerated and sustainable growth, coupled with decreasing risk, represent the embedded value of the New Europe
Economic growth, supported by both infrastructure development and EU convergence process, and increasing banking penetration guarantee high profitability in the next decade, with two digit CAGR in pre tax profits in all countries
Opportunities are related to sustained volumes growth (on the lending and deposit side), exploitation of new market segments (SMEs, affluent) and development of fee generating activities, all coupled with decreasing incidence of costs and credit quality problems
Decreasing risk, supported by EU convergence, leads to growing value added, due to contraction in cost of equity
70
ANNEX
• EU and EMU enlargement
• Revealed Comparative Advantage (RCA)
• Basic assumptions for banking growth simulation models
• Risk of contagion
• SUEMI description
• Definition of Non Performing Loans in the New Europe
• Macroeconomic and banking sector forecasts for UCI countries of operation
71
ANNEX – ENLARGEMENT PROCESS: EU PROBABLY IN 2004 FOR A LARGE NUMBER OF COUNTRIES, EMU ENTRY NOT BEFORE 2007
Source: UCI – FBD Research Division.
LAST REPORT OF THE EUROPEAN COMMISSION
EXPECTED ENTRY UE
CRITICAL FACTORS IN VIEW OF THE EU
CRITICAL FACTORS IN VIEW OF THE EMU
Hungary functioning market economy 2004Fiscal sustainability in the short-medium term
High inflation rate
Poland functioning market economy 2004Negotiations on agricultural issues
High interest rates Fiscal sustainability Zloty appreciated against €
Czech R. functioning market economy 2004Contrast w ith Austria for Temelin (nuclear) Fiscal policy
Fiscal sustainability
Slovakia functioning market economy 2004Political risk Labour market reform
Fiscal sustainability Exchange rate volatility High inflation rate
Slovenia functioning market economy 2004 Privatisation of f inancial sector no major matters of concern
Bulgaria close to a functioning market economy 2007/2008Structural reforms Privatisations
Reform process f inalization High inflation rate
Romania close to a functioning market economy 2007/2008Macroeconimic stabilization Structural reforms Intellectual piracy
High interest rate High inflation rate Fiscal sustainability
Estonia functioning market economy 2004Environmental issues Patents regulation
no major matters of concern
Latvia functioning market economy 2004Government commitment to privatisations
no major matters of concern
Lithuania functioning market economy 2004 Agricultural reform Reform process f inalization
Croazia* Signed in January the Stabilization and Association Agreement (SAA)
w hich preludes to negotiations
2007/2008*Complying w ith political requirements Economic reforms
Reform process f inalization Fiscal sustainability Exchange rate volatility
72
ANNEX – EXISTING COMPARATIVE ADVANTAGES ARE LIKELY TO STRENGHTEN IN VIEW OF EU ENTRY, WITH POSITIVE EFFECTS IN TERMS OF TRADE RELATIONS AND OVERALL GROWTH
Note: share in sectorial export over share in sectorial import minus 1. Positive value means that NECs have a comparative advantage compared to EU. Negative value means that EU has a comparative advantage compared to NECs.Source: COMEXT – Eurostat, 1999.
NECs advantageEU advantage
DEMAND SIDE NECs Revealed Comparative Advantage with respect to EU
PRIMARY PR.
Food
Raw Mater.
Energy
MANUFAC.
Chemical
Machinery
Other
NOT CLASSIFIED
73
POLAND
• EMU convergence after 2005, with EMU entry in 2009 (full rate convergence). Slow spread contraction, with a first decrease in 2002, full contraction by 2005-06. Lower lending reactivity to interbank rate drops, with widening of the mark up
• Lending and deposits growth above nominal GDP, supporting increasing banking penetration and sustaining NIM, affected by spread contraction after 2005
• Commission generating income shows sustained growth, following pension system reform and continue to perform two digit growth rates, with a pick in 2005, when bank start pushing on this kind of activities to compensate NIR contraction
• Search for efficiency guarantees growth of costs lower than inflation for the next five years, followed by growth in line with inflation
• Loan loss provisions as decreasing share of new loans
SLOVAKIA
• EMU convergence after 2005 and entry in 2009. Interest rates already at low level and spread to contract after 2005 only slightly.
• Lending and deposits growth above nominal GDP. Lending growth to start slowly, following credit quality and restructuring problems and to consolidate after 2005
• Commission generating activities busted by pension system reform, which will probably be implemented in 2006
• Overhead growth lower than inflation, with a first rise in 2001-2002, due to restructuring processes, followed by success of cost savings practices
• Loan loss provisions as share of new loans, decreasing over time as credit quality improves
ANNEX – BASIC ASSUMPTIONS FOR BANKING SIMULATION MODEL
Source. UCI – FBD Research Team. Simulation model based on Bankscope for historical values and OEF long term forecasts
74
ANNEX – BASIC ASSUMPTIONS FOR BANKING SIMULATION MODEL
Source. UCI – FBD Research Team. Simulation model based on Bankscope for historical values and OEF long term forecasts
BULGARIA
• Gradual EU convergence and no EMU entry before 2010.
• Sustained increase in banking penetration, with lending and deposit growth. Shift from FX to local denominated, with positive effects on margins, sustaining net interest revenues growth
• Commission generating income is expected to increase following nominal growth, with slight acceleration following pension system reform
• Costs are increasing slightly less than inflation
• Loan losses provisions are a decreasing share of new loans, relatively higher compared to other NECs, due to the need of creating a base for new loans reserves
CROATIA
• Gradual EU convergence
• Sustained increase in banking penetration, with lending and deposit growth. Shift from FX to local denominated, with positive effects on margins, sustaining net interest revenues growth. Growth potential for Non Interest Margin
• Costs are increasing slightly less than inflation
• Loan losses provisions are a decreasing share of new loans
75
• New Europe countries proved a
good reaction capacity to the
international slowdown, with
internal demand outpacing
negative effect of export
contraction
• Low sensitivity to emerging market
contagion, as proved by limited
impact of substantial (+75%)
increase in emerging risk premium
• Achieved migration from “Russian
influence” to “EU influence” area,
as proved by the fact that EU
represents more than 60% of total
trade of NECs
ANNEX – STABILISATION AND CONVERGENCE REDUCE RISK OF CONTAGION, WHILE INCREASING REACTION CAPACITY TO INTERNATIONAL SLOWDOWN
Simulated impact on GDP growth of an increase in general emerging risk premium
Relative incidence of EU slowdown on growth of New Europe countries
Source. Sensitivity to EU: EBRD estimates (the direct effect is limited to trade impact, the indirect effect accounts for other issues). Sensitivity to risk premium: FBD based on OEF.
0.6
0.4
0.8
0.40.5
0.3
0.5
0.0
0.2
0.4
0.6
0.8
1.0
EU Hungary Czech R Slovakia Poland
Direct + indirect effect Direct effect
2002 2003New Europe 3.46 4.02New Europe (high risk) 3.37 3.84Change in growth -0.09 -0.18
Latin America 0.35 5.05Latin America (high risk) 0.18 4.52Change in growth -0.17 -0.53
76
ANNEX – SUEMI: REAL TIME SOLE24ORE UBM EMERGING MARKETS INDEX
• 76 sovereign bonds are included,
amounting to EUR 36 bln and
representing 22 countries, among which
Poland, Hungary, Bulgaria, Slovakia,
Croatia, Latvia, Lithuania, Estonia and
Romania
• Sole UBM Emerging Market Index monitors total returns across sovereign debt instruments denominated in Euro, with fixed interest rates
• SUEMI is pretty similar to JPMorgan EMBI+, with the advantage to be focalised on CEECs and being Euro-denominated
• The SUEMI family includes two global indices, subdivided into three time-to-maturity groups. Bonds inclusion requires a nominal amount of 250 and 500 mln € respectively
Source: UBM.
SUEMI countries implied yields versus rating class, 01/06/01
rating class
imp
lied
yie
ld
77
ANNEX – NON PERFORMING LOANS DEFINITION
• Definition of risk class in different countries
NPL
Risk class definition in New Europe is generally based on the following parameters:• Borrowers financial situation assessment• Payment delays• Borrower’s economic sector assessment
Note: we have reported payment delays for each risk class and provision required for each risk class.
Standard: borrowers without financial problemsWatch: borrowers with some financial problem
Poland Bulgaria Slovakia Croatia
Loss (>6m)
Provision 100%
Loss (>6m)
Provision 100%
Loss (>12m)
Provision 100%
Loss (>12m)
Provision 100%
Doubtful (>3m)
Provision 50%
Doubtful (>3m)
Provision 50-75%
Doubtful (>6m)
Provision 50%
Doubtful (>6m)
Provision 60-90%
Substandard (>1m)
Provision 20%
Substandard (>2m)
Provision 30-50%
Substandard (>3m)
Provision 20%
Substandard (>4m)
Provision 25-60%
Watch (<1m)
Provision 1.5%
Watch (>1m)
Provision 15-25%
Watch (>1m)
Provision 5%
Watch Provision 10-25%
Standard (<1m)
Provision 1.5% retail
Standard (<1m)
Provision up to 3%
Standard (<1m)
Provision up to 2%
Standard Provision 1%
78
ANNEX – POLAND: MACROECONOMIC AND BANKING SECTOR FORECASTS
M a c r o e c o n o m i c f o r e c a s t s
F o r e c a s t s : b a n k i n g a g g r e g a t e s , b l n Z l o t y
2000 2001 2002 2003 2004
Real GDP growth 4,0% 1,1% 1,5% 3,2% 4,3%Inflation avg. 10,1% 5,5% 4,0% 4,8% 4,3%3M Wibor eop 19,5% 11,9% 8,5% 7,4% 6,3%Exchange rate ? (avg) 4,01 3,67 3,88 4,15 4,30Exchange rate ? (eop) 3,85 3,52 4,01 4,28 4,32
79
ANNEX – SLOVAKIA: MACROECONOMIC AND BANKING SECTOR FORECASTS
2000 2001 2002 2003 2004
Nominal GDP growth 8.8% 11.1% 9.7% 8.9% 8.3%Real GDP growth 2.2% 3.3% 3.8% 4.0% 3.7%Inflation avg. 12.0% 7.3% 6.5% 5.6% 4.8%1M Bribor eop 8.1% 7.7% 7.4% 6.3% 6.0%Exchange rate € avg 42.7 43.3 44.3 48.1 52.3Budget Bal./GDP -4.0% -3.9% -4.5% -4.2% -3.6%Current Acc. /GDP -3.5% -7.5% -5.8% -5.7% -5.4%
80
ANNEX – CROATIA: MACROECONOMIC AND BANKING SECTOR FORECASTS
Macroeconomic forecasts
Forecasts: banking aggregates, bln HRK
Forecasts: banking interest rates and spread
2000 2001 2002 2003 2004
Nominal GDP growth 10.4% 8.9% 7.9% 8.1% 8.1%
Real GDP growth 3.7% 4.0% 2.9% 3.5% 4.0%
Inflation AVG. 6.2% 4.9% 4.8% 4.5% 4.1%
Zibor 1M eop 7.9% 5.9% 5.1% 4.8% 4.8%
Exchange rate € avg. 7.70 7.48 7.50 7.69 7.88
Budget Bal./GDP -5.4% -5.3% -4.3% -3.8% n.a.
Current Acc./GDP -2.1% -5.0% -4.4% -6.1% n.a.
81
ANNEX – BULGARIA: MACROECONOMIC AND BANKING SECTOR FORECASTS
Macroeconomic forecasts
Forecasts: banking aggregates, mln BGL
Forecasts: banking interest rates and spread
2000 2001 2002 2003 2004
Nominal GDP growth 11.8% 12.3% 8.7% 9.3% 8.5%
Real GDP growth 5.8% 4.9% 3.7% 4.8% 4.5%
Inflation avg. 10.3% 7.4% 5.0% 4.5% 4.0%
Interbank rate eop 4.7 4.5 4.5 5.0 4.6
Exchange rate € eop 1.96 1.96 1.96 1.96 1.96
Budget Bal./GDP -1.1% -0.9% -1.3% -1.6% -1.6%
Debt service ratio 14.2% 19.2% 13.0% 12.5% 12.5%
82
ANNEX – ROMANIA: MACROECONOMIC FORECASTS
M a c r o e c o n o m ic f o r e c a s t s2000 2001 2002 2003 2004
Nominal GDP growth 4.3% 4.2% 10.0% 11.4% 7.8%
Real GDP growth 1.6% 4.5% 3.5% 4.2% 4.3%
Inflation avg. 45.6% 34.4% 25.0% 19.0% 16.0%
Money mkt Inter. rate 51.9 44.4 42.7 38.5 34.5
Exchange rate €, eop 24,142 27,817 34,735 40,279 47,290
Budget Bal./GDP -3.7% -3.9% -3.7% -3.5% -3.9%
External Debt/GDP 6.50% 8.30% 5.50% 4.80% 4.50%
Current Acc./GDP -3.7% -5.9% -5.2% -5.3% -5.5%