Transcript Presentation Title>>

CONFIDENTIAL
Russian banking development
Russia’s banking system comes of age
Geneva, July 2006
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
Russia’s world beating macro
Russia’s growth is spectacular – we think it will remain so and indeed
accelerate
Real GDP growth, %
GDP, $ bn
12%
$2,000
$1,800
10%
$1,600
$1,400
8%
$1,200
6%
$1,000
$800
4%
$600
$400
2%
$200
$0
0%
2000
2002
Hist oric real GDP, %
Source:
2004
UBS
2006E
M aximum
2008E
M edian
2000
2010E
2002
2004
2006E
2008E
2010E
M inimum
Rosstat, UBS estimates, Development Center
Source:
Rosstat, UBS estimates
1
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
Capital markets take-off
Deposits and pension fund moneys,
RUB trn
Bank loans as share of GDP, %
180%
16
160%
14
140%
12
120%
10
100%
8
80%
6
60%
4
Source: CBR, UBS estimates
Source:
M exico
Turkey
Indonesia
Peru
Russia
Brazil
Poland
Czech Rep
India
Philippines
Pension money, Rb t rn
Hungary
2010E
Chile
2008E
Sout h Af rica
Deposit s, Rb t rn
2006E
Israel
2004
Thailand
2002
M alaysia
2000
Singapore
0%
China
0
Korea
20%
Taiw an
2
Hong Kong
40%
CBR, UBS
2
Banks increasingly focus on retail; consolidation
continues
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
Loan composition, RUB trn
20
Share of market by type, %
100%
18
16
80%
14
12
60%
10
8
40%
6
4
20%
2
0%
0
2000
2001
Ent erprises
Source:
2002
2003
Individuals
2004
2003
2005 2006E 2007E 2008E 2009E 2010E
Int erbanks loans
CBR, UBS estimates
Local and cent ral government
2004
Sberbank
Source:
2005 2006E 2007E 2008E 2009E 2010E
Top 20 excl. Sberbank
Ot her
CBR, UBS estimates
3
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
Recent M&A in the sector
 Hansabank Group buys 100% of Kvest for $3.4mn (March 05)
 Banca Intesa buys 75% of KMB-Bank for $90mn (April 05)
 Societe Generale buys 100% of DeltaCredit for $110mn (August 05)
 DnBNOR buys 97% of Monchebank for $21mn (January 06)
 Raiffeisen International buys 100% of Impexbank for $550mn (February 06)
 Societe Generale buys 10% of Rosbank for $317mn (June 06)
 OTP Bank buys 94% of Investsberbank for $477 (July 06)
 JPMorgan intention to buy 20% stake in Bank of Moscow
4
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
High ROEs; high - though to decline - NIMs
Global ROEs, 2005, %
40%
Global NIMs, 2005, %
8%
7%
30%
6%
5%
20%
4%
3%
10%
2%
1%
0%
Source:
UBS estimates
Sb
er
In ban
do k
ne
Tu sia
rk
ey
In
G dia
re
Th ece
ai
la
n
Ko d
re
Un
a
it e Ch
i
d na
St
M at e
al s
a
Au ysi
st a
ra
lia
It a
Ta ly
iw
a
Sp n
C a
Ho an in
ng ad
Ko a
n
Ja g
pa
n
0%
k a a e i a i n ia i a d s a y ly ia g n n
an n ad o r e r eec n es p a t r al In d i l an t at e h i n r k e It a ays Ko n i w a ap a
b
S s
a J
a S C Tu
al
er Ca K G d o
Th t ed
M o ng T
Au
Sb
In
i
H
Un
Source:
UBS estimates
5
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
Key issues underlying the growth
 Macro stability Fiscal surpluses; a steady ruble; steady sustained growth;
political stability; increasing tax payments / the grey economy’s decline; increasing
legitimacy of property rights; and the massive improvement in the state’s balance
sheet, ultimately lie behind the banking system’s resurgence. Maintaining them is
needed to sustain its growth.
 Ruble trust A crucial part of this is the increased trust in the ruble. Firm for years,
its recent appreciation against the US$ and €, and recent move to full convertibility
underpin the confidence.
 Deposit Insurance The imposition of a funded deposit insurance has helped the
sector, and will help more as caps on amounts insured, and the pool of
accumulated premiums that lie behind it, grow.
 Transparency, credit bureaus and accounting The move to the CBR really
regulating (following DI introduction), the introduction of obligatory credit bureaus
and move to IFRS accounting, all support transparency and trust. The more such
moves are enforced, the more the trust and the market’s own disciplines will be
delivered.
6
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
What banking / capital market / S&L model fits best?
 State banks’ resurgence, foreign banks’ advent, and Russian private banks’
ambition, mean the large urban markets for both commercial and retail banking
look set to be well covered.
 The question of the need for support to regional & rural banks, raises questions of
whether a specific country’s model should be pursued.
 Particularly relevant is that of mortgage-orientated banks and intermediaries.
 Given the rapid development of the Moscow capital markets, the likely inflow of
international capital, and what is now viewed as best practice, we’d caution against
a Germanic Hypo / Landesbank type banking route, and instead suggest an AngloSaxon S&L / Building society / “mutual” type route with notable use of bonds.
 Despite recent scandals, the role of a Fannie Mae / Freddie Mac could be explored
to advantage, as it could support the development of mortgages to regions and
rural areas.
7
zhuravna [printed: July 7, 2006 7:07 PM] [saved: July 7, 2006 7:12 PM] C:\Documents and Settings\zhuravna\Local Settings\Temporary Internet Files\OLK2C\Ed banking 3 July'06.ppt
Disclaimer
This material has been prepared by UBS AG, or an affiliate thereof ("UBS"). In certain countries UBS AG is referred to as UBS SA.
This material is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular
needs of any recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No
representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete
statement or summary of the securities, markets or developments referred to in the materials. It should not be regarded by recipients as a substitute for the exercise of their own judgement.
Any opinions expressed in this material are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of
using different assumptions and criteria. UBS is under no obligation to update or keep current the information contained herein. UBS, its directors, officers and employees' or clients may have
or have had interests or long or short positions in the securities or other financial instruments referred to herein and may at any time make purchases and/or sales in them as principal or
agent. UBS may act or have acted as market-maker in the securities or other financial instruments discussed in this material. Furthermore, UBS may have or have had a relationship with or
may provide or has provided investment banking, capital markets and/or other financial services to the relevant companies. Neither UBS nor any of its affiliates, nor any of UBS' or any of its
affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material.
Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this presentation. Prior to entering into a transaction you
should consult with your own legal, regulatory, tax, financial and accounting advisers to the extent you deem necessary to make your own investment, hedging and trading decisions. Any
transaction between you and UBS will be subject to the detailed provisions of the term sheet, confirmation or electronic matching systems relating to that transaction. Clients wishing to effect
transactions should contact their local sales representative. Additional information will be made available upon request.
For financial instruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC and/or UBS Capital Markets LP) acts as a
market maker or liquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider is
carried out in accordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this material.
United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is communicated by UBS Limited, a subsidiary of UBS AG, to persons who are market
counterparties or intermediate customers (as detailed in the FSA Rules) and is only available to such persons. The information contained herein does not apply to, and should not be relied
upon by, private customers. UBS Limited is regulated by the FSA. France: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities France S.A. UBS Securities France
S.A. is regulated by the Autorité des Marchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this material, the material is also deemed to have been
prepared by UBS Securities France S.A. Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the
Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities España SV, SA. UBS Securities España SV,
SA is regulated by the Comisión Nacional del Mercado de Valores (CNMV). Russia: Prepared and distributed by the Moscow Representative Office of UBS Cyprus Moscow Limited.
Switzerland: These materials are distributed in Switzerland by UBS AG to persons who are institutional investors only. Italy: Prepared by UBS Limited and distributed by UBS Limited and
UBS Italia Sim S.p.A.. UBS Italia Sim S.p.A. is regulated by the Bank of Italy and by the Commissione Nazionale per le Società e la Borsa (CONSOB). Where an analyst of UBS Italia Sim
S.p.A. has contributed to this material, the material is also deemed to have been prepared by UBS Italia Sim S.p.A.. South Africa: UBS South Africa (Pty) Limited (Registration No.
1995/011140/07) is a member of the JSE Limited, the South African Futures Exchange and the Bond Exchange of South Africa. UBS South Africa (Pty) Limited is an authorised Financial
Services Provider. United States: These materials are distributed by UBS Securities LLC or UBS Financial Services Inc., subsidiaries of UBS AG, or solely to US institutional investors by
UBS AG or a subsidiary or affiliate thereof that is not registered as a US broker-dealer (a "non-US affiliate"). Transactions resulting from materials distributed by a non-US affiliate must be
effected through UBS Securities LLC or UBS Financial Services Inc. Canada: These materials are being distributed in Canada by UBS Securities Canada Inc., a subsidiary of UBS AG and a
member of the principal Canadian stock exchanges & CIPF. Hong Kong: The materials relating to equities and other securities business, and related research, are being distributed in Hong
Kong by UBS Securities Asia Limited. The material relating to corporate finance, foreign exchange, fixed income products and other banking business, and related research, are being
distributed in Hong Kong by UBS AG, Hong Kong Branch. Singapore: Distributed by UBS Securities Pte. Ltd or UBS AG, Singapore Branch. Japan: The materials relating to equities, fixed
income products, corporate finance and other securities business, and related research, are distributed in Japan by UBS Securities Japan Ltd. The materials relating to foreign exchange and
other banking business, and related research, are distributed in Japan by UBS AG, Tokyo Branch. Australia: These materials are distributed in Australia by UBS AG (Holder of Australian
Financial Services Licence No. 231087) and UBS Securities Australia Ltd (Holder of Australian Financial services Licence No. 231098). New Zealand: These materials are distributed in New
Zealand by UBS New Zealand Ltd.
 [Insert year] UBS. All rights reserved. UBS specifically prohibits the redistribution of this material and accepts no liability whatsoever for the actions of third parties in this respect.
8