market position and key elements in Čsob´s growth strategy

1

Market position

and key elements in ČSOB´s growth strategy

Patrick DaemsMember of the Board of Directors

Prague

April 19, 2004

2

Outline of the presentation

Profile incl. history

Financial performance and risk management

Market position – the Bank

Market position – subsidiaries

Role of KBC

Strategy





Role of KBC

Strategy

3

ČSOB belongs to major players in Central Europe

Operates as :

universal bank strong group offering a full range of

banking and other financial services bank with well diversified business:

retail, SME, corporate/financial markets (3.2m customers)

group with vast distribution network: in the Czech Republic (CR) 208 branches and 3,400 postal outlets, in the Slovak Republic (SR) 75 branches, full range of direct banking channels

Operates as :

universal bank strong group offering a full range of

banking and other financial services bank with well diversified business:

retail, SME, corporate/financial markets (3.2m customers)

group with vast distribution network: in the Czech Republic (CR) 208 branches and 3,400 postal outlets, in the Slovak Republic (SR) 75 branches, full range of direct banking channels

KBC´s largest banking subsidiary in CE

(by assets and profit contribution)

2002 Top CE banks (USDbn)

The largest bank in the CR

(by assets)

Fourth largest bank in the Slovak market

(by assets and deposits)

ČSOB

7.07.18.48.9

11.112.1

13.614.8

17.0

19.819.9

PKO BP(PL)

ČSOB(CZ)

PEKAO(PL)

KB (CZ)

ČS (CZ)

OTP (HUN)

PBK (PL)

NLB (SLO)

BankHandlowy

(PL)

BRE Bank(PL)

ING Bank(PL)

The second largest bank in CE

(by assets)

4

“Our ambition is to be a united family of bank-insurers built upon a stable and substantial retail franchise, efficiently providing financial services to our customers according to their needs, and delivering a sustainable return to our shareholders by leveraging our current position.”

ČSOB´s Vision

5

upper upper RETAILRETAIL

mass mass RETAILRETAIL

PSBPSB

ČSOBČSOBKBKB

ČSČS

GECBGECB

future competitive area necessity to differentiate via non-tangible image

WE ARE PRIMARILY FOCUSING ON RETAIL BUSSINESSES

Brand & Image Positioning

The Czech retail market is rapidly maturing which increases the competition amongst key players that have been more targeting middle-retail customers. Therefore, ČSOB intends to attack ČS’s position from below via PSB, as well as is preparing a new positioning strategy for ČSOB brand

ČSOB Private Bank

6

ČSOB´s retail dual brand distribution network

SMEs

Affluent Retail

Mass RetailMass 77%

Distribution:• 190 branches• 33 SME hubs• 125 affluent

hubs• Differentiated

service through personal bankers Affluent 13%

160,000

• standard service

890 ths clients

Postal Savings Bank(PSB)ČSOB

2,150 ths clients

45,000

Mass 97%

Affluent 3%

• 8 own PSB branches

• 3,400 postal outlets, incl. 400 specialized PSB counters

• standard service

7

ČSOB Historic milestones

1964 – ČSOB established to finance foreign trade of the country and to act as an exclusive agent of the State at the international markets

1990 – diversification of commercial banking activities; customer base and branch network started to steadily grow

1999 – ČSOB privatized – majority shareholder KBC Bank NV, minority stakes of EBRD and IFC

2000 – IPB business acquired; ČSOB leveraged opportunity to leapfrog in retail banking

2001 – merger with IPB successfully completed, acquisition significantly strengthened ČSOB´s position in the building savings industry, mortgage banking, insurance and pension funds

8






Role of KBC

Strategy





Role of KBC

Strategy

9

ČSOB good track record of sound profitability

2,823

4,691

5,9526,591 6,240

1999 2000 2001 2002 2003

2003

14.3 %67.2 % 2.15 %15.36 %

14.3 %67.2 % 2.15 %15.36 %

NIM

ROAEC/I ratio

CAD

Key Drivers :

solid growth in fee income strong growth in lending across

segments modest increase of NIM significant contribution from

business performed by subsidiaries 2002 exceptionally high recoveries

of bad debts not repeated our operations virtually free of non-

standard, historical drivers after completion of the cleanup of the Group B/S

Key Drivers :

solid growth in fee income strong growth in lending across

segments modest increase of NIM significant contribution from

business performed by subsidiaries 2002 exceptionally high recoveries

of bad debts not repeated our operations virtually free of non-

standard, historical drivers after completion of the cleanup of the Group B/S

2003 Net profit: CZK 6.2 bn( EUR 195m)

Development of net profit (CZKm)

Release of provisionsCZK 1.2bn

10

Fee income related primarily to business growth in sales of funds and asset management, payment cards, domestic payments and lending

Comparable cost flat despite expansion in Slovakia and investment in advanced technologies (direct channels)

2003: strong business growth leading to high growth of revenues, costs under control

Note: 1) excluding ČSOB PF which was consolidated for the first time in 2003

CZKm

+ 5 %

+ 11 %

+ 1 %

N/A

+ 5 %

+ 11 %

+ 1 %

N/A

Change Adj.Change Adj.

14,454

6,207

15,232

N/A

14,454

6,207

15,232

N/A

2003 Adj.1) 2003 Adj.1)

13,721

5,591

15,054

1,150

13,721

5,591

15,054

1,150

14,730

6,367

15,617

- 353

14,730

6,367

15,617

- 353

2002 2003

+ 7 %

+ 14 %

+ 4 %

-

+ 7 %

+ 14 %

+ 4 %

-

Change

Operating expenses

Net interest income

Net fee income

Provisions

11

NPLs of the Bank decreased to 3.1 %

(i.e. Loans › 90 days overdue) 90 % of portfolio is of good quality

(Loans A - D according to ČSOB´s classification)

High level of credit risk provision coverage (187 %)

Historic portfolio and related recoveries no more pollute performance reporting

Traditional „ČSOB“ high credit quality improved even further

Fitch 9/03: „ČSOB has a track record of strict credit risk classification.“

Moody´s 8/03: „ČSOB has a tradition of adopting more conservative asset-quality measures than its domestic peer group.“

S&P 10/03: „Historically ČSOB had the best lending culture of the major domestic banks operating in the Czech Republic.“

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Role of KBC

Strategy





Role of KBC

Strategy

13

ČSOB´s strengths

25,024,327,0

13,313,2

17,819,319,919,4

Assets Loans Deposits

31.12.2001 31.12.2002 31.12.2003

Market share in the CR - Bank (in %)

Leading market position in terms of total assets

Strong market position in deposits kept despite continuing transfer of deposits to mutual funds

Leading market position in sales of mutual funds (mainly CGFs – 80% market share)

Strong market position in mortgage business

Leading market position in construction savings and loans

Leading market position in financial markets

Leading market position in leasing

14

Major shift from plain deposits to mutual funds – CGFs (CR)

Note: *) ČSOB, ČMSS (only individuals) **) without ex-privatization funds

RETAIL CLIENTS´ASSETS IN MUTUAL FUNDS**

10 %10 % 12 %12 % 15 %15 % 20 %20 %MarketShare

Market

ČSOB

CZK bn

788,1869,2 863,3 898,3

270,8264,8256,5225,3

2000 2001 2002 2003

MarketShare

RETAIL BANK DEPOSITS*

29 %29 % 30 %30 % 31 %31 % 30 %30 %

CZK bnMarket

ČSOB

44,556,6

88,9

114,2

4,5 7,0 13,422,2

2000 2001 2002 2003

ČSOB y/y growth in sales: + 43 %

15

Product / service innovation drives the increase of AuM

522 340

547 083

2002 2003

+ 5 %

73,533384,199

64,608

73,533384,199

64,608

78,307382,881

85,895

78,307382,881

85,895

+ 7 %-

+ 33 %

+ 7 %-

+ 33 %

2002 2003 Change

AUM (incl. pension funds)Bank depositsBuilding savings

CUSTOMER ASSETS

UNDER ČSOB GROUP MANAGEMENT

ČSOB KeyPlan (financial advisory – used by 43ths retail clients till 31.3.04) brings more assets under management

16

Initiative to be more flexible and up to clients´ needs resulted in lending volume growth across the segments

Retail/SME Corporate

CR + 38 % SR + 88 % CR + 8 % SR + 36 %

ČSOB Bank y/y loan growth

High speed+ flexibility

High growth High quality

17

Retail lending proved new dynamics (CR)

Note: *) consumer loans, credit cards, and overdrafts **) ČSOB, ČMHB, ČMSS

Marketshare

CONSUMER LENDING*

3 %3 % 4 %4 % 5 %5 % 7 %7 %

+

CZK bn

ČSOB y/y growth: + 71 %

1,41,9

2,8

4,8

0,0

1,0

2,0

3,0

4,0

5,0

6,0

2000 2001 2002 2003

ČSOB Market growth

Market+ 15 %

MORTGAGES & BUILDING LOANS**

Marketshare

39 %39 % 33 %33 % 32 %32 % 32 %32 %

+ 1

CZK bn

ČSOB y/y growth: + 50 %

21,124,2

30,6

45,8

0

10

20

30

40

50

2000 2001 2002 2003

ČSOB Market growth

Market + 46 %

18

Branch and business expansion in Slovakia

187 768

132 459

94 755

172 456

80 000

90 000

100 000

110 000

120 000

130 000

140 000

150 000

160 000

170 000

180 000

190 000

XII.00 XII.01 XII.02 XII.03

customers

Number of customers

Number of customers increased by more than 15 thousand in 2003 and almost doubled since 2000.

22 new branches were opened in 2003.

73

67

29

38

51

0

10

20

30

40

50

60

70

80

branches

Branch expansion

19

Investments in network in Slovakia strengthened sales

6,66,6

7,6

5,7

4,24,0

8,5

6,87,5

Assets Loans Deposits

31.12.2001 31.12.2002 31.12.2003

Market share in the SR (in %)

Contribution of Slovak operations to Group income - 8 %

Robust growth:ČSOB + 55 %, the market + 15 %

Loans

Assets

Mortgages SKK 737m of new mortgages

Consumer loans doubled,SKK 1.2 bn of new consumer loans

Consumer Loans

Market share in 2003 adjusted, with MinFin deposit withdrawal the share decreased to 6.0 %

Deposits

Growth outpaced by far the market: ČSOB + 22 %, the market - 2 %

*)

*)Excluding extra-ordinary deposits from Ministry of Finance

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Role of KBC

Strategy





Role of KBC

Strategy

21

Subs´ leading position in CR provides opportunities for further synergies

Building savings deposits1Building savings deposits1

Building savings loans1Building savings loans1

ČMSS40 %

ČMSS35 %

Note: 1) according to volume as at 31 December 2003 2) according to volume of new business in 2003

1st

1st

ČSOB Leasing

14 %

Mortgages1Mortgages1

Leasing2Leasing2

2nd

1st

2nd in Europe, 2.2m customers Volume of mortgages CZK 26.1bn

ČMHB24 %

2nd

22

Total written insurance premium in 2003: CZK 6.0 bn (life insurance: CZK 3.2 bn)

Significant market position also in life insurance and pension funds (CR)

Total insurance1Total insurance1

Life insurance1Life insurance1

ČSOB Pojišťovna

6 %

Note: 1) according to volume of written premium in 2003 2) according to volume of client-funds as at 31 December 2003

ČSOB Pojišťovna

8 %

5th

5th

ČSOB PF10 %

Pension funds2Pension funds2

6th

2 pension fundsfor dynamic investors

for conservative investors

23

Good market position also in Slovakia

Building savings deposits2Building savings deposits2Leasing1Leasing1

ČSOB SP6 %

ČSOB Leasing

15 %

Note: 1) according to volume of new business in 2003 2) according to target amount of new contracts in 2003

2nd 3rd

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Role of KBC

Strategy





Role of KBC

Strategy

25

Close co-operation with KBC

mutual funds chip cards intl. cash management financial market products

mutual funds chip cards intl. cash management financial market products

procurement card processing intl. cash management investment research

procurement card processing intl. cash management investment research

Support in product innovation

KBC Governed areas Centrally coordinated areas in KBC Group

Transfer of know-how

retail bancassurance asset management distribution network

management and other areas

retail bancassurance asset management distribution network

management and other areas

market risk credit risk internal audit

market risk credit risk internal audit

KBC

26






Role of KBC

Strategy





Role of KBC

Strategy

27

STRATEGIC GOALS

STRATEGIC GOALS

Strengthen ČSOB’s position on the Czech financial market

Significantly improve its position in Slovakia

Therefore we will focus on:

providing bank-insurance services to individuals and small and medium-sized enterprises in both markets

maintaining our current strong position in the segment of corporate customers as well as in the area of financial market services

Strategy of the ČSOB Group

STRATEGIC INITIATIVES

STRATEGIC INITIATIVES

Group governance model - United Family - creates value through cross-selling & use of distribution synergies. United Family concept also implements cost saving processes and creates efficiency gains from increased synergies.

Cost-out initiative assesses areas of potential cost-savings across the ČSOB Group and introduces active cost management.

Increase of Retail & SME lending activities intends to increase market share in consumer lending, to make mortgages a core banking product as well as to benefit from building loans´ high potential utilisation

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Business direction of the ČSOB Group

CORE BUSINESS INTENTION

CORE BUSINESS INTENTION

HOW TO GET THERE

Part I

HOW TO GET THERE

Part I

To provide bank-insurance services to individuals and to serve entrepreneurs, small and medium-sized enterprises, municipalities, large corporate clients and non-banking financial institutions.

Continue to build upon successful brand approach (ČSOB and Postal Savings Bank) and extensively develop multi-channel way of service in both Czech and Slovak markets.

Significantly improve the quality of client relationship management.

Introduce (in Retail and SME segment) a concept of four customer-need platforms in 2004: Wealth management, Payment comfort, Financing customers’ needs, and Services for SME clients.

Nurture ČSOB Bank’s (not including Postal Savings Bank) ambition to achieve at least 18% market share for all ČSOB retail banking products by 2007 (with the exception of consumer lending, where it intends to nearly double its currently low 5% market share).

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Business direction of the ČSOB Group

HOW TO GET THERE

Part II

HOW TO GET THERE

Part II

Assure that sales in the Bank’s branches reach 18% market share in new mortgages granted in 2007.

Build upon successful wealth management, where ČSOB currently holds a leading position in the sales of mutual funds in the Czech Republic.

ČSOB desires to become the main bank for 27 % of the SME clients by 2007 (currently 20%).

In Slovakia, to complete ČSOB’s retail branch expansion and to achieve a very ambitious target: 10% market share in retail loans and assets under management by 2007.

30

Financial goals of the ČSOB Group

BETTER COST MANAGEMENT

BETTER COST MANAGEMENT

Rightsizing project: By the end of 2004, ČSOB should complete the rightsizing project that would reduce the staff in the Bank headquarters in Prague by appr. 1 000 employees.

Management of operational expenses improvement project: primarily based on the SAP implementation in 2004 and on a new procurement and logistics concept

New headquarters building: to be opened in late 2006, also plays a very important role in this cost reduction process as it will significantly downsize ČSOB’s facility management expenses.

REVENUE ENHANCEMENT

REVENUE ENHANCEMENT

Operational income enhancement: ČSOB will strengthen its ongoing effort to maintain a balanced relationship between net interest income and fee and commission income.

Cross-selling will be the main driver of the operating income growth, supported by activities such as ČSOB “Key Plan” campaigns.

31

Appendix

KBC´s corporate governance and shareholding

IPB transaction

Risk management in ČSOB

ČSOB ratings

E-banking and card business


IPB transaction

Risk management in ČSOB

ČSOB ratings

E-banking and card business

32


KBC Bank NV

89.71 %

EBRD7.47 %

Others 2.82 %

ČSOB´s registered capital = CZK 5,105m (EUR 157m)

Two executive managers – expatriates nominated by KBC to ČSOB´s BoD responsible for FM operations, ALM, Corporate Banking, IS and Retail/SME and activities in the SR

About 10 KBC experts working as line managers in Credits and Bad Debts, Retail and SME Branch Network Management, Corporate Banking Policy and IS Development

Frequent contacts between ČSOB and KBC Bank at all levels

Two executive managers – expatriates nominated by KBC to ČSOB´s BoD responsible for FM operations, ALM, Corporate Banking, IS and Retail/SME and activities in the SR

About 10 KBC experts working as line managers in Credits and Bad Debts, Retail and SME Branch Network Management, Corporate Banking Policy and IS Development

Frequent contacts between ČSOB and KBC Bank at all levels

ČSOB´S SHAREHOLDER STRUCTURE

as at 31.3.2004

KBC purchased 4.39% stake of IFC (1.3.2004)

33

IPB transaction completed

Acquisition of IPB contributed significantly towards the fulfillment of ČSOB´s goal – to broaden the scope of its retail business. ČSOB took over ex-IPB retail client base including their funds. IPB acquisition also provided ČSOB with the postal distribution network.

The IPB acquisition significantly strengthened ČSOB´s position in the building savings industry, mortgage banking, insurance and pension funds.

Integration included merger of head offices and branch networks, IT systems and customers bases, re-branding of all buildings with new logo.

Acquisition of IPB contributed significantly towards the fulfillment of ČSOB´s goal – to broaden the scope of its retail business. ČSOB took over ex-IPB retail client base including their funds. IPB acquisition also provided ČSOB with the postal distribution network.

The IPB acquisition significantly strengthened ČSOB´s position in the building savings industry, mortgage banking, insurance and pension funds.

Integration included merger of head offices and branch networks, IT systems and customers bases, re-branding of all buildings with new logo.

IPB put into forced administration at 16 June 2000 after severe run on the bank caused by rumors regarding the financial health of the bank. ČSOB purchased the „IPB Enterprise“ (i.e. business) from the IPB´s forced administrator on 19 June 2000.

Czech Ministry of Finance and the central bank have provided a support scheme linked to the rescue acquisition – the arrangements eliminated financial risks of the transaction for ČSOB.

Restructuring Plan provided ČSOB with an option to put any IPB asset to a state owned work-out institution („ČKA“). The ČKA similarily had a call option. By August 2003 all ex-IPB assets determined as eligible for transfer have been transferred to ČKA.

IPB put into forced administration at 16 June 2000 after severe run on the bank caused by rumors regarding the financial health of the bank. ČSOB purchased the „IPB Enterprise“ (i.e. business) from the IPB´s forced administrator on 19 June 2000.

Czech Ministry of Finance and the central bank have provided a support scheme linked to the rescue acquisition – the arrangements eliminated financial risks of the transaction for ČSOB.

Restructuring Plan provided ČSOB with an option to put any IPB asset to a state owned work-out institution („ČKA“). The ČKA similarily had a call option. By August 2003 all ex-IPB assets determined as eligible for transfer have been transferred to ČKA.

34

Conservative risk management in ČSOB

In risk management ČSOB adheres to the principle of a limited risk profile that is based on a sophisticated structure of internal limits for different types of risk and products. ČSOB follows the KBC Group standards;

Market risk - ČSOB and ČSOB Group is primarily monitored, analyzed and reported at ČSOB level. The results are used for monitoring at the consolidated KBC Group level;

Operational risk – KBC Group-wide methodology implemented;

Short-term liquidity is managed on a daily basis, liquidity scenarios are used for medium and long-term liquidity management.

35

ČSOB's LT and ST ratings from Moody´s and Fitch are at the same level as the sovereign rating for the Czech Republic (i.e. the highest possible). ČSOB´s rating of Financial Strength from Moody´s and Individual rating from Fitch are higher than the ratings of ČSOB´s Czech peers.

ČSOB belongs to banks with the highest rating also in CE. ČSOB's LT ratings from Moody's, Fitch and S&P are at the highest level in CE. Among the banks with the highest LT ratings, ČSOB has the highest rating of Financial Strength from Moody´s and the second highest Individual rating from Fitch.

Moody´s Long-term: A1 Short-term.: Prime-1 Financial strength: C-

Standard & Poor´s Long-term: BBB Short-term.: A-2

Fitch Long-term: A- Short-term: F2 Individual: C Support: 1

Capital Intelligence Long-term: BBB Short-term: A3 Financial strength: BBB+ Support: 2

ČSOB belongs, according to its rating, to the most creditworthy banks in CE

36

Dynamic growth of e-banking and card business

808 037

514 998

301 240

2001 2002 2003

Internetbanking

PC banking

GSM banking

Telephonebanking

Number of e-channel users up by nearly 60 % compared to 2002

More than 50 % of all transactions e-booked

Chip cards: 160ths issued (June-Dec. 2003)

ČSOB the largest operator of a network of payment terminals in the CR

Number of E-banking users (incl. SR) Number of payment cards issued and number of ATMs (incl. SR)

259 331488

1 433

1 194

1 583

2001 2002 2003

Cards (ths)

ATMs

market position and key elements in Čsob´s growth strategy

Documents

retail banking

sobs position

ss position

current position

strong business growth

range of banking

mortgage banking

solid growth