GROWTH BY COMBINING BEST PRACTICES

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1 GROWTH BY COMBINING BEST PRACTICES L. Lovaglio General Manager at Bank Pekao

2 AGENDA Poland macroeconomic and banking sector scenario The creation of New Pekao New Pekao strategic initiatives Strategy for Ukraine Closing remarks 2

3 BIGGEST NEW EU MEMBER WITH STRONG ECONOMIC GROWTH DRIVEN BY INVESTMENTS AND CONSUMPTION Biggest New EU Member Strong GDP growth GDP per capita below EU average Population 62% 38% Poland New EU Members GDP avg. growth % F-09F Poland Eurozone GDP per capita EUR ths EU 15 CEE 16 (1) 7.1 Poland... driven by: Investment growth (29% Y/Y) FDI standing for 4.4% of GDP in 2006 EU funds earmarked for Poland in reaching 67 EUR bn Personal consumption Rapidly decreasing unemployment rate (from 18.2% in to 13.0% in ) Dynamically growing wages (10% increase in 2007 expected) EURO 2012 triggering further acceleration in investment Good risk profile: A-/Stable by S&P; A2/Stable by Moody s 3 Source: UniCredit-NE Research Network (1) CEE 16 aggregate includes PL, HU, CZ, SK, SI, EE, LV,LIT, HR, BG, RO, TK, RU, Serbia, BiH and UA

4 LOW BANKING PENETRATION DRIVING FUTURE GROWTH RETAIL TO DELIVER MOST OPPORTUNITIES Banking penetration Retail banking Poland LOANS SAVINGS 7 38 Mortgage/ GDP 9 Eurozone 68 AuM/GDP Total volume EUR bn % Total volume EUR bn % Mutual Funds Deposits Strong growth of asset management Increasing demand for consumer and mortgage loans Boost in SME lending High demand for e-banking solutions 34 Loans/ GDP Deposits/ GDP Corporate banking LOANS Total volume EUR bn % 51 DEPOSITS Total volume EUR bn % 45 Further development of cash management and FX transactions Increasing role of capital market in corporate financing (eg. Syndicated loans) 2006 figures Note: Data provided by CEE Division Macroeconomic Department +x% CAGR 06-09

6 BPH SPIN-OFF STRONGLY CONTRIBUTING TO THE NEW PEKAO SPIN-OFF ASSETS TO BE MERGED WITH PEKAO Retail 285 retail branches, with employees and customers No need to close overlapping branches after the deal ~350 partner agencies Corporate Corporate business with customers Treasury Only limited ALM and Treasury functions to maximize synergies generation IT and Operations support Operational systems and staff selected across divisions to ensure functioning of both new Pekao and new BPH without any disruption to customers Limited cost of restructuring required after the merge PROCESS RUN BY ESTABLISHED MANAGEMENT TEAM 6 Part of BPH to be merged with Pekao

7 INTEGRATION ON TRACK, WITH SUCCESSFUL ACHIEVEMENTS ACHIEVEMENTS SO FAR Management structure and senior team defined combining key talents Refined business model leveraging best practices Enhanced IT platform beyond combined service levels Strong business focus maintained: very limited customer and employee churn RETAINED TALENTS Turnover of employees of both banks % 0.41% Before spin-off announcement (1) 0.48% After spin-off announcement (2) RETAINED CLIENTS Churn of customer accounts% 0.76% 0.73% Before spin-off After spin-off announcement (1) announcement (2) Legal integration/spin-off of BPH 285: Operational integration: ~30 days after regulatory approval Up to 6 months after the legal integration 7 (1) Monthly average of period April 2005 March 2006 (2) Monthly average of period April 2006 March 2007

8 NEW PEKAO WILL BECOME TOP BANK IN POLAND Customer funds (1) EUR bln Loans (2) EUR bln # of Branches New Pekao 30.7 New Pekao 16.4 PKO BP 1,239 PKO BP 23.9 PKO BP 15.5 New Pekao SA 1,067 ING BSK 13.4 BRE Bank 6.2 BZ WBK 384 BZ WBK 10.8 BZ WBK 4.8 Bank Millennium 379 Citibank 6.4 Bank Millennium 4.1 Kredyt Bank NOTE: December 2006 (1) Deposits + Mutual funds managed by entities in Group (2) Nominal value: Net loans Source: Companies Annual Report

10 LEVERAGING COMPLEMENTARY BEST PRACTICES STRENGTHS of PEKAO STRENGTHS of BPH Customer retention and cross selling capabilities Leadership in Asset Management Effective cost and risk management Leading commercial network Customer acquisition capabilities Leadership in fee based services for Corporate customers Advanced MIS and sales management tools 10

11 ACCELERATING NEW PEKAO FOR GROWTH STRATEGIC INITIATIVES Driving both, customer acquisition and cross-selling, based on innovative products/services in most attractive segments: Retail family by focusing on mortgages & consumer loans Affluent by enhancing the advisory proposition & investment products SMEs by further improving service and loans processes Corporate by combining financing and transactional capabilities Leveraging strongest distribution reach with multi-channel approach: Offering nationwide physical network (branches and ATMs) Further developing multi-channel platform IT platform enhancement supporting offer enrichment Best practice in cost management 11

12 RETAIL FAMILY: FOCUS ON MORTGAGES AND CONSUMER LOANS LEVERAGING UCI S PRODUCT FACTORIES Results so far (Old Pekao) MORTGAGES Mortgage sales volume, EUR mn Expected market growth CAGR : +26% Key actions, products & services Mortgage as acquisition tool Product enhancement to exploit market shift towards zloty; no FX mortgages Strengthening of largest mortgage advisors network and 3rd party channels Next generation process improvement CONSUMER LOANS Consumer loans sales volume, EUR mn CAGR : +19% Capture cross-selling potential combining best from both banks Tap non-captive customers through customized products and intense marketing Enrichment of tailored insurance as attractive packages 12

13 RETAIL AFFLUENT/SME: ENHANCE THE ADVISORY PROPOSITION & INVESTMENT PRODUCTS; FURTHER IMPROVE SME SERVICES AND LOANS Results so far (Old Pekao) AUM Mutual funds stock, EUR bn Expected market growth CAGR : +23% Key actions, products & services Further diversification of product range (e.g. international funds or alternative assets) Enhancement of asset allocation tools reducing advisor portfolios Stepping up cross-sell with particular focus on BPH SMEs LOANS SME loans volume, EUR mn CAGR : +13% Enlargement of customer base through ~50 dedicated hunters New dedicated e-platform, allowing easy remote banking Shortened and simplified credit process Strengthening joint service model for affluent business owners 13

14 CORPORATE: COMBINE FINANCING AND TRANSACTIONAL CAPABILITIES Results so far (Old Pekao) LOANS Loans volume, EUR bn Expected market growth CAGR : +11% Key actions, products & services Service model with single point of entry and multilevel relationship Best product offering based on both banks best practices (e.g. Multioption line) Advanced functionalities of supporting systems and tools (e.g. MIS with profitability by product/ customer) TRANSACTIONAL SERVICES No of customers, ths CAGR (1) : +13% Leverage BPH expertise in transactional products (liquidity management and x-border pooling) Implementation of advanced CRM system to ensure successful cross selling of value added products Enhanced internet based trade finance and transactions products 14 (1) Source: Global Revenue and Value Pool

15 STRONG NATIONWIDE PRESENCE ROOM FOR FURTHER EXPANSION IN SELECTED REGIONS Geographic presence: 1,067 (1) branches and the biggest network of 2,716 (2) ATMs N of branches N 1 in branch market share N 2 in branch market share N 3 in branch market share N 4 in branch market share (1) Including only Banking Branches (2) Including Euronet ATMs

16 IT PLATFORM ENHANCEMENT SUPPORTING OFFER ENRICHMENT Key initiatives Integration of the brokerage system allowing for the introduction of security products sales in branches and via internet platform Introduction of an enhanced automatic scoring system for SMEs allowing for strengthened and simplified credit decisions Introduction of integrated performance management tool allowing for deep profitability overview: by product, customer, portfolio 16

17 BEST PRACTICE IN COST MANAGEMENT KEY SAVINGS AREAS External services MAIN INITIATIVES Economies of scale in purchasing, capturing volume discounts Elimination of projects duplication (e.g. integration of the call centers solutions) AS % OF COST SYNERGIES 33% Communication, IT and Business maintenance Real estate, security, travel Increased centralization of back-office functions Further automation and redesign of processes (e.g. standardization of ATMs network management) Centralization of facilities management functions Floor space optimization 29% 27% Bottom-up synergies: 60 EUR mn in 2009 Fixed assets Divestiture of underutilized assets (e.g. reducing the car fleet) 11% 17

19 UKRAINE HUGE, FAST GROWING AND UNDERSERVED MARKET Huge market 2006 With strong GDP growth % Very promising outlook Population Mln 389 EU 15 GDP per capita Ths EUR CEE 16 (1) 47 Ukraine (avg) 2007F-09F (avg) and banking low market penetration (1) % Ukraine Eurozone Ukraine Eurozone Low labor cost, attracting foreign investments Low penetration vs. EU and Poland, with significant room for growth in all products Manageable risk reflected in ratings S&P BB-, Moody s B EU 15 CEE (1) Ukraine Loans/ GDP Deposits/ GDP 19 Source: UniCredit-NE Research Network (1) Data as of December 31, 2006

20 STRATEGY FOR UKRAINE: MERGER OF GREENFIELD START-UP AND HVB FOLLOWING AN AMBITIOUS DEVELOPMENT PLAN UniCredit Bank a greenfield retail bank (1) HVB Ukraine a corporate bank (1) Total assets: EUR mln 169 Total loans: EUR mln 52 Number of clients: 16,700 Number of branches: 24 Total assets: EUR mln 454 Total loans: EUR mln 344 Number of clients: 946 (2) Number of branches: 6 MERGER FOR GROWTH STARTING IN 2007 New Bank Top 15 Ukrainian bank setting the basis for future ambitious growth (1) Data as of end of April 2007 (2) Only Corporate Clients 20

21 THE RETAIL GREENFIELD VENTURE Key Achievements to date Implementation of Greenfield Retail operations with currently 24 branches Full operational platform created from scratch Integrated IT platform Designed processes and established central back office, including call center Standardized branch model designed to international standard Core team recruited Management team, almost entirely Ukrainian Over 440 staff hired and trained UniCredit Bank brand successfully launched Merger with HVB Ukraine in its final stage Lutsk Kharkiv Kyiv Dnipropetrovsk Donetsk Mariupol Mykolaiv Odesa 21

22 UKRAINIAN BANK STRATEGY RETAIL BUSINESS Open 160 branches in two years reaching country-wide presence till 2008 Leverage UniCredit Group know-how and expertise in Retail Develop a wide range of lending products, leveraging credit cards (including gold/platinum cards) CORPORATE BUSINESS Ensure selective growth in mid-cap market Leverage international network of the Group Develop best practice transactional services and trade finance products Increase product sales: current accounts with ATM debit cards, savings plans and term deposits (both local and foreign currency) 22

24 LEVERAGING ON PEKAO S SUCCESSFUL TRACK RECORD... ROE (%) C/I (%) EPS (EUR) % Market capitalization EUR bn +27% Q x% CAGR 03-06

25 ... ACCELERATING GROWTH COMBINING BEST PRACTICES AND EXPLOITING HEALTHY ENVIRONMENT Attractive macroeconomic perspectives with solid country risk profile Ready for integration: ambitious management team, waiting for regulatory approval Aspirational growth initiatives combining joint strengths in attractive segments: Retail family by focusing on mortgages & consumer loans Affluent by enhancing the advisory proposition and investment products SMEs by further improving service and loans processes Corporate by combining financing and transactional capabilities Expansion in Ukraine as second home market 25