Banking System The Czech Republic

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Banking System The Czech Republic
15th BACEE Central and East European and Bank
and Country Conference 14-16 November 2006,
Budapest
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Banking System overview Reforms Privatisation

• 1990 - 1995, Period of Expansion After
  transition to market economy several private
  financial institutions were established and
  foreign players entered the Czech market, by mid
  90-ies the total amount of banks reached 55 out
  of which 34 were domestic.
• 1995 - 2000, Period of Consolidation The second
  half of 90-ies is characteristic for
  consolidation of the banks and transition of
  ownership in to foreign hands. The total number
  of banks fall to 40 out of which only 14 remained
  domestic.
• 1998 - today is marked by privatization of state
  owned banks cleaning portfolios of Sporitelna,
  Komercni Banka IP Banka, etc. by transferring
  problem loans to Ceska Konsolidacna Banka and
  subsequent sale to foreign investors
• State ownership in banking sector drops
  dramatically
• Concentration of banks is growing and it will be
  further fuelled by merger of HVB CR and
  Zivnostenska Banka

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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Structure of the banking sector

Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Structure of the banking sector Assets I.

Note Calyon S.A. changed its subsidiary into a
branch on 1.11.2005 Bank of
Tokyo-Mitsubishi UFJ NV set up a branch in 2006
Source CNB, Raiffeisen Research
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Structure of the banking sector Assets II.
Shares of bank groups' Total Assets in of Banking sector Total Shares of bank groups' Total Assets in of Banking sector Total Shares of bank groups' Total Assets in of Banking sector Total Shares of bank groups' Total Assets in of Banking sector Total Shares of bank groups' Total Assets in of Banking sector Total Shares of bank groups' Total Assets in of Banking sector Total
  12/31/03 12/31/04 12/31/05 03/31/06 06/30/06
Banking sector, total 100 100 100 100 100
large banks 62.11 59.77 61.23 62.24 61.87
medium-sized banks 15.59 15.75 15.11 15.37 15.65
small banks 1.45 1.55 1.98 2.19 2.17
foreign bank branches 10.35 10.94 9.52 7.93 8.52
building societies 10.51 11.99 12.17 12.27 11.79

Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Structure of the banking sector Assets III.
Shares of bank groups' Gross credits in of Banking sector Total Shares of bank groups' Gross credits in of Banking sector Total Shares of bank groups' Gross credits in of Banking sector Total Shares of bank groups' Gross credits in of Banking sector Total Shares of bank groups' Gross credits in of Banking sector Total Shares of bank groups' Gross credits in of Banking sector Total
  12/31/03 12/31/04 12/31/05 03/31/06 06/30/06
Banking sector, total 100.00 100.00 100.00 100.00 100.00
large banks 61.07 59.68 57.65 58.05 57.12
medium-sized banks 21.28 21.56 23.37 22.83 23.18
small banks 1.20 1.76 2.61 2.49 2.81
foreign bank branches 9.00 7.87 7.32 7.57 7.77
building societies 7.45 9.13 9.04 9.05 9.13
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Banking sector development Assets I.
  12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 2004 vs. 2003 change over time in 12/31/05 (in CZK'mln.) 2005 vs. 2004 change over time in
Total Assets 2,527,707 2,635,554 4.3 2,954,369 12.1
Receivables from banks 756,953 825,455 9.0 919,851 11.4
Receivables from customers 996,200 1,073,858 7.8 1,174,356 9.4
Debt securities 210,726 208,650 -1.0 276,919 32.7
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Banking sector development Assets II.
03/31/06 (in CZK'mln.) 03/31/06 vs. 2005 change over time in 06/30/06 (in CZK'mln.) 06/30/06 vs. 2005 change over time in
Total Assets 3,030,832 2.6 3,117,253 5.5
Receivables from banks 939,277 2.1 910,869 -1.0
Receivables from customers 1,222,787 4.1 1,290,833 9.9
Debt securities 281,568 1.7 307,624 11.1
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
TA Market share
Ranking (2005) BANK Assets in 2005 (EUR'mln.) Assets in Q3-2006 (EUR'mln.) Market share (2005)
1. Ceskoslovenska Obchodni banka 26,387.5 29,287.65 25.3
2. Ceska Sporitelna 23,418.0 25,613.4 22.4
3. Komercní banka 17,677.7 17,567.7 17.7
4. HVB Bank Czech Republic 6,887.3 - 6.6
5. Commerzbank 3,784.0 2,195.1 3.6
         
TOP-3 TOP-3 67,483.2 43,181.1 65.4
TOP-5 TOP-5 78,154.4 - 75.6
   
H1-2006 figure H1-2006 figure H1-2006 figure H1-2006 figure H1-2006 figure
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Ownership of Top-10 banks

• CSOB - KBC, Belgium
• Ceska Sporitelna - Erste Group, Austria
• Komercni Banka - Societe Generale, France
• HVB Bank - Unicredito, Italy
• Commerzbank - Commerzbank, Germany
• Raiffeisenbank - Raiffeisen Group, Austria
• Citibank - Citi Group, USA
• GE Money Bank - General Electric, USA
• ING Bank - ING, Netherland
• Zivnostenska Banka - Unicredito, Italy

Source CNB, Raiffeisen research
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Credit boom
Sector is focused on retail market which has by
provided ground for solid growth as a result of
the favourable demographic factors and
historically low interest rates. Household and
mortgage loans in 2005 stabilized somewhat after
a boom in 2004.
Source CNB, Raiffeisen Research
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
CZ and its Peers Lending rates
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
CZ and its Peers Loans to the private sector
Source BIS, National Central Banks
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
CZ and its Peers Household Loans I.

• CZ is advanced in terms of legal and
  institutional reforms
• boost 2nd highest GDP per capita in CE (see chart
  to right)
• bank restructuring and privatization is largely
  completed and the sector is characterised by high
  market shares of foreign owned banks
• the overall size of the banking sector is still
  below the Euro-zone level
• similarly to the economy the banking sector is
  also approaching the EU level

Credits to households vs. GDP/capita
CZ in 2004
Source CNB, Raiffeisen research
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
CZ and its Peers Household Loans II.
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Loan quality
(in CZK'mln.)
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
CZ and its Peers Loan quality
  Non-performing loans (2005) Provisions (2005)
CZ 4.4 2.8
Hungary 3.6 1.9
Poland 6.0 5.5
Slovakia 6.3 4.9
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Structure of the banking sector Liabilities
Shares of bank groups' Client deposits in of Total in of Banking sector Total Shares of bank groups' Client deposits in of Total in of Banking sector Total Shares of bank groups' Client deposits in of Total in of Banking sector Total Shares of bank groups' Client deposits in of Total in of Banking sector Total Shares of bank groups' Client deposits in of Total in of Banking sector Total Shares of bank groups' Client deposits in of Total in of Banking sector Total
  12/31/03 12/31/04 12/31/05 03/31/06 06/30/06
Banking sector, total 100.00 100.00 100.00 100.00 100.00
large banks 68.40 64.52 62.97 63.74 64.32
medium-sized banks 11.30 10.91 11.51 11.32 11.13
small banks 1.49 1.71 2.12 2.40 2.32
foreign bank branches 3.88 5.68 5.75 6.15 6.11
building societies 14.93 17.18 17.66 16.39 16.11
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Banking sector development Liabilities I.
  12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 2004 vs. 2003 change over time in 12/31/05 (in CZK'mln.) 2005 vs. 2004 change over time in
Total Liabilities 2,385,068 2,489,819 4.4 2,787,227 11.9
Liabilities to banks 285,320 361,134 26.6 409,691 13.4
Liabilities to customers 1,665,887 1,731,850 4.0 1,919,559 10.8
Liabilities from debt securities 201,680 214,619 6.4 262,046 22.1
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Banking sector development Liabilities II.
03/31/06 (in CZK'mln.) 03/31/06 vs. 2005 change over time in 06/30/06 (in CZK'mln.) 06/30/06 vs. 2005 change over time in
Total Liabilities 2,856,329 2.5 2,938,665 5.4
Liabilities to banks 309,262 -24.5 336,515 -17.9
Liabilities to customers 2,078,575 8.3 2,143,529 11.7
Liabilities from debt securities 255,948 -2.3 259,950 -0.8
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Equity I.
  12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 2004 vs. 2003 change over time in 12/31/05 (in CZK'mln.) 2005 vs. 2004 change over time in
Equity 142,639 145,735 2.2 167,142 14.7

  03/31/06 (in CZK'mln.) 03/31/06 vs. 2005 change over time in 06/30/06 (in CZK'mln.) 06/30/06 vs. 2005 change over time in
Equity 174,503 4.4 178,588 6.8
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Equity II.
Capital adequacy Capital adequacy Capital adequacy Capital adequacy Capital adequacy Capital adequacy
  12/31/03 (in CZK'mln.) 12/31/04 (in CZK'mln.) 12/31/05 (in CZK'mln.) 03/31/06 (in CZK'mln.) 06/30/06 (in CZK'mln.)
Capital in CZK millions 142 639 145 735 167 142 174 503 178 588
Capital requirements for banking portfolio 73 294 85 758 105 159 110 164 116 179
Capital requirements for trading portfolio 5 545 7 040 7 596 9 001 7 589
Capital adequacy in 14.47 12.56 11.86 11.72 11.54
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
CZ and its Peers Capital Adequacy
  Capital adequacy (2005)
CR 11.9
Hungary 11.4
Poland 15.4
Slovakia 17.0
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Ratings of selected Banks in 11/2006
  Moody's Fitch SP
CSOB A1/P-1 A/F1 -
Ceska Sporitelna A2/P-1 A-/F2 A-/A-2
Komercni Banka A1/P-1 AA-/F1 A/A-1
Zivnostenska Banka A2/P-1 - -
Source Website of Moodys, Fitch and SP
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Banking system profitability indicators
  Absolute indicators in CZKmillions Absolute indicators in CZKmillions Absolute indicators in CZKmillions Absolute indicators in CZKmillions
  12/31/03 12/31/04 12/31/05 06/30/06
Income from banking activities 90,252 103,486 108,918 57,476
interest profit 54,303 59,760 64,043 34,194
income from fees and commissions 26,343 31,326 31,831 16,566
income from shares and interests 824 1,369 2,189 844
income from other financial transactions 8,783 11,031 10,854 5,872
securities transactions 751 3,115 2,213 (1,480)
foreign exchange operations 5,818 8,889 4,700 4,418
derivatives transactions (excluding hedging) 2,214 (975) 3,937 2,934
transfer of receivables for trading 0 2 4 0
Net profit 30,193 32,852 39,139 21,060
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Banking system profitability indicators
  12/31/03 12/31/04 12/31/05 03/31/06 06/30/06
Income from banking activities/average assets in 3.62 3.96 3.88 3.78 3.79
Net profit/average assets in 1.21 1.26 1.39 1.44 1.39
Net profit/capital (Tier 1) in 23.80 23.34 25.16 26.18 25.23
Total interest income/interest earning assets in 3.92 3.77 3.87 3.87 3.91
Total interest expenses/interest bearing liabilities in 1.89 1.64 1.58 1.55 1.58
Interest rate spread in 2.03 2.13 2.29 2.32 2.33
Source CNB
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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Recent developments I.

• moderate growth of commercial banking sector in
  H1-2006
• booming economy has fuelled consumer spending -gt
  growth in loans
• loan/deposits, loans/assets and loan/GDP ratios
  continue to move upwards
• lt-gt HOWEVER this growth remains low on an
  international comparison (e.g. loan/asset ratio
  of 40.9 is the second lowest in CEE)
• banking sector is entering a level of maturity
• the bond portfolio has recently declined
• Bank of Tokyo-Mitsubishi opened a branch in in
  April, this year
• Österreichischer Gewerkschaftsbund (OGB) is to
  sell its financial group BAWAG P.S.Ks -gt Czech
  BAWAG to be sold
• Moody's announced on 1 November to increase the
  long-term foreign currency-denominated
  obligations rating of Czech Export Bank (CEB)
  from A1 to Aa1

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15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest
Recent developments II.

• Raiffeisen International to focus on asset
  management and insurance in CE incl. CZ
• Antimonopoly Office and the Czech National Bank
  approved Komercni Banka aquiring 60 stake in
  construction savings bank Modra Pyramida on 13
  October
• Raiffeisenbank acquires 100 in Czech eBanka,
  purchase price was set at EUR 130mn (CZK 3.7bn),
  merger will be legally and operationally
  completed by 2008
• Ceska Sporitelna (CS) implements a new strategy
  aiming at strengthening its position as the
  leader of the retail banking segment by e.g.
  reducing client liability in the event of a lost
  card and by increasing the number of investment
  consultants at its branches, Jack Stack, CEO said
  on 10 October
• CS has to cancel anonymous bank books within the
  fight against money laundering, however people
  have just withdrawn CZK 570 mln. in Q3-2006 and
  still have CZK 4.45bln. in these books

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Outlook
15th BACEE Central and East European Bank and
Country Conference 14 - 16 November 2006, Budapest

• Strengths
• Concentration of banks
• 95 of operations in foreign hands -gt improved
  risk management
• Opportunities
• Retail/consumer lending (still).
• Mutual fund distribution
• Asset management

• Weaknesses
• Rapid expansion mainly targeted households -gt
  DOUBTS about resilience of banks credit
  portfolios to macroeconomic shocks
• Market is maturing
• Threats
• Possible further consolidation may put smaller
  banks at a disadvantage