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					ZAGREBACKA BANKA
Franjo Lukovic - CEO
2nd UCI INVESTOR DAY
Focus on New Europe
London, December 5th, 2002

Agenda
Why Croatia ? Bank’s Key Highlights Key projects and strategies

2

CROATIA: STABLE ECONOMIC GROWTH AND PERSPECTIVES
 Strong economic growth with low inflation and

Year 2001
Population, mln Per Capita GDP, Eur Inflation rate, % Ref. interest rate(1), % S&P country rating

Croatia

4.4 4,961 2.6 3.2




 

BBB-

interest rates. Sovereign ratings by S&P at BBB-, with stable outlook. Small market but with strong international ties greatly benefiting of international openness. Some control of public expenditure (although not as tight as expected) resulting in lower fiscal deficit. Improvements in trade balance and expected higher levels of FDI. Italy, Germany, Austria and Slovenia as main trading partners. Service sector largely privatised (banking, telecom) with substantial part of the industrial sector still awaiting restructuring (oil, power supply, agriculture)
2004E 4.4 3.0 2.4
 Sustained GDP growth with

2002E
Real GDP growth, % Inflation rate, % Ref. interest rate, %

2003E 3.8 3.0 2.4

3.7 2.4 2.0

(1) 1W ZIBOR, interbank money market rate (2) Central European Free Trade Agreement Source: NE Research Network

inflation under control.  Highest growth rates are expected in construction, trade, tourism and financial services.  FDIs likely to increase as Croatia moves closer to the EU, and once it joins CEFTA(2), becomes part of a free trade zone covering nearly all of eastern and southern Europe. 3

HIGHLY COMPETITIVE BANKING SECTOR, LARGE GROWTH POTENTIALS
 Bank consolidation and increased foreign

Branches per mln inhabitants

(Loans+Deposits)/GDP

580 185

203% 106%

 



EU

Croatia

EU

Croatia



ownership, improved profitability, asset quality, capitalisation and liquidity. Croatian banking sector has one of the highest foreign ownership percentage (90,8%) in CEE Highly concentrated industry: 47% of total banking assets concentrated at two largest banks (ZABA, PBZ) and 60% at 4 largest banks. Rapidly growing banking, with substantial increase in 2001 thanks to Euro effect. Large growth potentials to reach EU level in terms of banking penetration (loans and deposits ratio to GDP, currently 1/3 of EU average).

2001 2002E 2003E 2004E  Lending - fast growth in 2001 and 2002 (1), %  Retail: strong demand of housing Loans growth 23.2 19.5 12.7 11.5 loans (1), %  Corporate: sustained increase as Deposits growth 47.4 7.4 8.4 8.4 a result of economic growth (2), % (3)  Deposit growth boosted by EMU Rate on Loans n.a. 9.0 8.2 8.2 currencies conversion into Euro; further (2), % (3) increase expected due to economic Rate on Dep. 2.3 1.9 1.9 n.a. recovery and increase in personal (2), % (3) income Spread n.a. 6.7 6.3 6.3  Competition driving down margins (1) Nominal growth and increasing customers (2) End-of-period Banking System data; rates calculated on avg LC+FX expectations. indexed and FX denominated Loans and avg LC+FX Deposits (3) Not available due to change in methodology which makes old data not comparable 4 Source: NE Research Network

BOSNIA AND HERZEGOVINA A NEW HOME MARKET FOR ZAGREBACKA BANKA
BOSNIA AND HERZEGOVINA
2000 2001 2002E 2003E

 FDIs in the banking system intensified,
2,3 9,0 3,3 2,3 8,0 2,3 4,1 8,0 1,8

Real GDP, % yoy

4,5

Industrial production % yoy 8,0 Inflation (CPI) yoy, avg
Sources: IMF; Central bank of BiH.

5,6

 Tax and structural fiscal reforms are in act  Privatisation of state-owned companies /

banks  Constant decrease in foreign aid  Economy recovery is expected in later years (2004/05) - according to IMF

with over 68% of banking sector in the hand of foreign investors.  Banking system restructuring continues further restoration of confidence  Good financial results in the first half 2002  sustained growth of corporate (+31%) and retail (+54%) loans;  ...not followed by sufficient growth of deposits;  increased profitability.  Strong growth potential - significant amount of foreign currency held by citizens outside the domestic banking system and over 50% of citizens don’t do business with banks

Zagrebačka banka BH and Universal banka Sarajevo, EUR 30mln or 9% of total revenues
 Strategy / focus on:  Consolidation/optimisation of existing  development of new products and
Market share in Federation BiH (%) Zagrebačka banka BH
2000 2001

presence

Universal banka Sarajevo
2000 2001

quality of service improvement, further development of client segmentation  cost reduction  particular focus on asset quality and risk management system

Assets Deposits Loans

15,1 17,6 11,2

14,2 17,0 12,6

6,9 8,4 9,3

7,3 8,2 9,8

Sources: Banking Agency of Federation BiH, ZABA BH, UBS

5

Agenda
Why Croatia ? Bank’s Key Highlights Key projects and strategies

6

THE LEADING BANK IN GROWING MARKETS WITH ALMOST 9 MN INHABITANTS
Croatia Bosnia-Herzegovina
Euro mln, consolid. figures as at Sep 30, IAS

Zagrebacka banka Group
 Strongest position in traditional banking

Total Assets Deposits Loans Loans/Deposits, % Total Revenues Net Income Branches Employees Customers o/w retail o/w corporate Cost/income, % ROE, % Deposits Mkt Share, % Loans Mkt Share, %
(1)

6,748 5,348 2,989 55.9 316 96 214 5,800(1) 1.6 mln 1.5 mln 87,000 63 21.5 34 24

services: retail and corporate loans, savings and payment services (mkt shares Croatia: corporate loans 23%, retail loans 26%, corporate deposits 32%, retail deposits 35%; mkt shares BiH: corporate loans 21%, retail loans 25%, corporate deposits 19%, retail deposits 33%)
 Broad client base and excellent distribution

capacities: 214 branches, well developed direct banking channels (329 ATMs, phone banking, leading internet banking provider: 33,000 corporate and 14,000 retail clients)
 Growth potential in innovative and wealth

management products (investment and pension funds)
7

of which 450 in non-core businesses (tourism, etc.) to be divested

STRONG PERFORMANCE CONTINUED DURING 2002
(Euro mln) Total Revenues*
316 +14.2% 277


Net Interest Income
145

+3.6%

150

 Operating income and profitability



Operating Income
119 83
+44.1%

Net Commission and Fee Income
+33.4%

9M01

9M02



54 9M01 9M02 9M01

71



Operating Costs
9M01 9M02
+1.5%

9M02



194

197

Other Operating Income +20.8%
78 95

increased due to continued growth of core business and strong cost control. ROE improved for +40% yoy from 15.3% to 21.5%. C/I Ratio improvement from 64% to 63% Excellent commission and fee income growth (+33.4% yoy) above predicted levels. Net interest income around last year’s performance, but above budgeted figure despite continuing decrease of Net Interest Margins. Strong growth of loans (corporate +28%, retail +25% yoy), increase in transaction volumes (card business, loans and payment services).

9M01 9M01 * Including extraordinary items 9M02

9M02

ZABA positive year end results are expected at around +50% level yoy and will confirm our strong position.

8

ASSET QUALITY IMPROVING, WITH INCREASED COVERAGE RATIOS
Net NPLs and Doubtful Loans as % of Total Net Loans
7.5% 5.0% 5.0% 3.4%

Coverage ratios
71.4% 63.0% 62.4% 71.9%

2001 restated
Net Doubtful Loans/ Total Net Loans

9M02
Net NPLs/ Total Net Loans

2001 restated
On Gross Doubtful Loans

9M02
On Gross NPLs

(Euro mln)

Dec. 2001
170 112

9M 2002
163 103

% ch. on Dec.’01
-4.1% -8.7%

Net Doubtful Loans Net NPLs

 Improved loan-book quality due to effective recovery actions and NPL repayments through collateral activation  Significant new loans inflow  Improvement of coverage ratios 9

Agenda
Why Croatia ? Bank’s Key Highlights Key projects and strategies

10

PARTNERSHIP PROGRAMME WITH UCI LAUNCHED ON MAY 15, 2002
KEY PROJECTS UNDERGOING:
 Client segmentation (corporate & retail) with divisionalisation to be completed by end 2003  Sales force effectiveness strengthening with redeployment from back to front office  Introduction of new products and further development of product companies (funds, bancassurance, structured Term Deposits, leasing, derivatives)  Cross selling targets  Further development of e-zaba to fully exploit revenues growth potentials from liberalisation of payment services  Creation of International Desk (covering Italian and New Europe business)  Centralised procurement and establishment of dedicated cost management structure  Progressive headcount rationalisation  Exploit Group procurement synergies  Merger of CRT Zagreb into ZABA (additional consolidation expected in the future to foster additional costs improvement)  New retail underwriting and corporate monitoring tools  Redesign of credit functions, in charge of developing the pilot project for management systems for all UCI NE banks  Centralised market risk management 11

REVENUES

COSTS

RISK

STRATEGIC GUIDELINES TO ENSURE FOR FUTURE GROWTH, EFFICIENCY AND PROFITABILITY
What we have already accomplished

South and Southeast Europe
What we intend to accomplish together with UniCredito

BiH Croatia 1st step 2nd step 3rd step

Leadership position in almost all business segments through organic growth and acquisitions

New home markets through Zagrebacka banka BH Mostar and Universal banka Sarajevo

 Divisionalisation with segment based service models  Focus on affluent, small business and private  Improve penetration, share of wallet and revenues per client  Cost control and development of alternative channels  Development into clear regional leader with consolidation of Bosnian operations and further growth in the region

Excellent platform for the entire region

12

SUMMING UP

 A dominant player in a small, but rapidly growing market (rapid catch up process after several years of disarray) ...  ... operating in a rapidly growing banking market with double digit volume growth although subject to some spread compression due to increased competition...  ..... with scope for relevant profitability increase, via increased commercial effectiveness, improvement of loans to deposits ratio and improvement in cost income through tight cost control  Strategy focused on significant profitability increase (revenues increase especially on retail via specialised segment based service model and cost cutting) ....

 ... and on leveraging on strong market positioning to acquire dominant role in the region, where rapid growth is expected in the future (Bosnia almost 5 mln inhabitants, Serbia almost 10 mln inhabitants) to ensure steady EPS growth for the future
13

Annexes

14

ZABA GROUP 9M2002 CONSOLIDATED INCOME STATEMENT
(Euro mln, IAS)
Interest margin Net non interest income Dec. 00 164 248 Dec. 01 204 155
Ch. % 2001/2000

Sep. 01 145 132

Sept. 02 150 166

Ch. % Sept. 02/ Sept. 01

+24.29 -37.36

+3.56 +25.96

Total revenues
Operating costs (incl. dep.) - of which: Staff costs

412 -229
-107

359 -247
-118

-12.80 +7.70
+10.88

277 -194
-85

316 -197
-89

+14.21 +1.46
+5.35

Net operating income
Net loan loss provisions Other provisions Extraordinary income/loss

183
-27 -10 0

113
-22 -9 0

-38.45
-19.44 -10.87 0.00

83
-3 -7 0

119
3 1 0

+44.14
-208.60 -110.02 0.00

Pre-tax profit/loss
Taxes
(1)

146
-10

82
-17

-43.92
+80.05

73
-19

123
-23

+68.98
+20.98

Net income
Minorities

136
-4 128

65
-2 61

-52.64
-60.87 -52.56

54
-1 53

100
-3 96

+85.93
+320.53 +81.15

Net attributable income
(1)

Statutory tax rate for legal entities: 20% (35% until the end of 2000)

15

ZABA GROUP 9M2002 CONSOLIDATED BALANCE SHEET
(Euro mln, IAS) Cash and deposits with Central Banks
Sept. 01 Dec. 01 Sept. 02
Ch. % Sept. 02/ Sept. 01 Ch. % Sept. 02/ Dec. 01

721 2,979 2,184 795 650 256 905

1,210 3,375 2,268 1,107 803 263 830

787 3,895 2,989 906 1,259 289 517

+9.20 +30.75 +36.85 +13.97 +93.67 +12.74 -42.79

-34.95 +15.41 +31.78 -18.13 +56.69 +9.68 -37.64

ASSETS

Loans due from and placements to:
- Customers - Banks

Trading and avail.-for-sale securities Fixed assets Other assets

TOTAL ASSETS AND LIABILITIES
Deposits:
- Due to Customers - Securities in issue - Due to Banks

5,511
4,199 4,143 0 56 0

6,482
5,143 5,064 0 79 0

6,748
5,549 5,348 0 201 0

+22.44
+32.15 +29.08 0.00 +257.90 0.00

+4.10
+7,91 +5.61 0.00 +155.72 0.00

LIABILITIES

Reserve fund for possible loan losses Specific reserves

0
788 0 30 494

0
796 0 32 511

0
579 0 33 586

0.00
-26.45 0.00 +9.28 +18.68

0.00
-27.18 0.00 +0.28 +14.76

Other liabilities
Subordinated debt Minority interest Shareholders’ equity

16

BANKING SECTOR RANKINGS BY TOTAL ASSETS
Bank Strategic owner Assets (HRK,bln) 09/2002 Market Share in total assets (%) 09/2002 2001 2000

Zagrebacka banka Privredna banka Raiffeisen banka Splitska banka Hypo Alpe-Adria banka Rijecka banka

UniCredito Intesa BCI Raiffeisenbank HypoVereinsbank Hypo Alpe-Adria Erste bank

42.4 30.6 12.8 9.4 9.3 8.2 5.9 5.4 5.2 3.7 30.1
163.0

26.0 18.8 7.9 5.8 5.7 5.0 3.6 3.3 3.2 2.2 18.5
100%

27.7 18.6 6.5 6.6 4.3 7.1 3.3 1.8 2.0 2.4 19.7
100%

29.1 18.4 4.6 7.2 3.4 7.1 2.7 1.6 2.6 22.0
100%

Erste & Steiermark. banka Erste bank Hrvatska postanska banka State owned Nova banka Varazdinska banka Other banks
Total

Charlemagne ZABA -

17

ZAGREBACKA BANKA GROUP STRUCTURE (CORE BUSINESS)
Zagrebacka banka is a licensed bank operating in Croatia and the holding company for the Zagrebacka banka Group BANKING Varazdinska banka, Croatia Universal banka Sarajevo, Bosnia-Herzegovina FINANCIAL SERVICES Prva stambena štedionica - building society ZB Invest - investment fund management ZB Brokeri - brokerage ZANE - real estate agency ASSOCIATED COMPANIES Allianz Zagreb - insurance Allianz ZB - pension fund management (48%) (49%) (100%) (100%) (100%) (100%)
(ownership)

(93.8%) (99.6%)

Zagrebacka banka BH Mostar, Bosnia-Herzegovina (79.4%)

18

DIVERSIFIED GROUP WITH COMPLEMENTARY PRODUCT COMPANIES
Zagrebacka banka is a universal bank operating in Croatia and the holding company of Zagrebacka banka Group
Non-core investments

BANKING

EUR 280 mln/88.22% of revenues  Zagrebacka banka (69.3% of revenues, 27.8% mkt share in total assets)  Varazdinska banka (6.86% of revenues, 2.5% mkt share in total assets)  Zagrebačka banka BH Mostar, BiH (5.94% of revenues, 14,2% mkt share in total assets)  Universal banka Sarajevo, BiH (3.44% of revenues, 7.3% mkt share in total assets)  Prva stambena stedionica building society (1.09% of revenues, 42% mkt share)  ZB Invest - investment fund management company (0.54% of revenues, 54% mkt share)  ZB Brokers - brokerage (0.43% of revenues, 26% mkt share)  ZANE - real estate services (0.59% of revenues)

TOURISM EUR 32 mln/9.97% of revenues  Istraturist Umag, one of the leading hotel operators on the Adriatic coast, to be divested

INVESTMENT PROPERTY EUR 6 mln /1.82% of revenues  Centar Kaptol commercial centre  CGP - property development

 Strongest position in traditional banking services:

retail and corporate loans, savings and payment services (mkt shares Croatia: corporate loans 23%, retail loans 26%, corporate deposits 32%, retail deposits 35%; mkt shares BiH: corporate loans 21%, retail loans 25%, corporate deposits 19%, retail deposits 33%).  Broad client base and excellent distribution capacities: 214 branches, well developed direct banking channels (329 ATMs, phone banking, leading internet banking provider: 33.000 corporate and 14.000 retail clients).  Excellent potential in innovative and wealth management products (investment and pension funds)

19

WELL BALANCED AND DIVERSIFIED CORPORATE LENDING PORTFOLIO
Corporate Net Loan Portfolio (Bank) Structure by Industry
31/12/2001
Electrical and optical equipment Energy , gas and water 3% Metal and machine supply 3% 3% Oil deriv ativ es and Construction chemicals 6% 5% Wood and paper Agriculture, f orestry 2% and f isheries 7% Textiles and leather 2% Food and drink 5% Other 9% Education, health, and other soc. and personal serv ices 3% Central and local gov ernment and def ence 18% Trade 17%

30/09/2002
Electrical and optical equipment Energy , gas and water 3% supply Metal and machine 3% 2% Construction Oil deriv ativ es and 5% chemicals Agriculture, f orestry and 2% f isheries Wood and paper 4% 3% Textiles and leather 2% Trade 20%

Food and drink 6% Other 11% Education, health, and other soc. and personal serv ices Central and local 3% gov ernment and def ence 15%

Hotels and restaurants 5%

Hotels and restaurants 5% Transport and communication 8% Real-estate business 4%

Transport and communication 10% Real-estate business 6%

20


				
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