DEVELOPMENT POTENTIAL OF PRIVATELY-OWNED

RUSSIAN BANKS

Michel Perhirin, CEO, MDM Bank

RUSSIA-NETHERLANDS ECONOMIC FORUM

Fifth Session – Amsterdam, 18 – 19 November 2007

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RUSSIA – THE PLACE TO BE

BANKING SECTOR – THE PLACE TO STAY

COMPETIVE ENVIRONMENT

PRIVATE BANKS’ STRATEGIES

RUSSIAN BANKS VS GLOBAL LIQUIDITY SQUEEZE

CONTENTS

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RUSSIA – THE PLACE TO BE…

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If hot for politics and structural weaknesses, Russia would already be an A-rated country

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…AND SOLID INVESTMENT-GRADE STORY

- Russia’s FX reserves exceed USD 450 bn...

…This is more than enough to support local borrowers in case of need…

…And ensure stability of the local economy.

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RUSSIA – THE PLACE TO BE

BANKING SECTOR – THE PLACE TO STAY

COMPETIVE ENVIRONMENT

PRIVATE BANKS’ STRATEGIES

RUSSIAN BANKS VS GLOBAL LIQUIDITY SQUEEZE

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RUSSIA’S BANKING SECTOR – THE PLACE TO STAY

Growth rates are returning to a normal pace after several years of extraordinary development.

Assets surpassed 60% of GDP in October 2007. Growth will continue – although at a somewhat slower rate due to the impact of the liquidity squeeze.

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…AND TO BENEFIT FROM THE GROWING MARKET

Russia is far from saturation in terms of banking services. Banks have room for further growth.

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RUSSIA – THE PLACE TO BE

BANKING SECTOR – THE PLACE TO STAY

COMPETIVE ENVIRONMENT

PRIVATE BANKS STRATEGIES

RUSSIAN BANKS VS GLOBAL LIQUIDITY SQUEEZE

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COMPETITION IS INCREASING FROM THE STATE…

Source: MDM Bank estimations

TOP 30 BANKS BY NUMBER OF OUTLETS

State-owned banks dominate in terms of assets and cost of funding…

…As well as in terms of physical presence

Source: Finans. magazine

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…AND FROM FOREIGN BANKS

Foreign players are aggressively expanding their presence in Russia.

…The growing influence of foreign banks primary impacts private Russian owned banks, as both state-owned and foreign players seek to increase their market shares.

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RUSSIA – THE PLACE TO BE

BANKING SECTOR – THE PLACE TO STAY

COMPETITIVE ENVIRONMENT

PRIVATE BANKS’ STRATEGIES

RUSSIAN BANKS VS GLOBAL LIQUIDITY SQUEEZE

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PRIVATE BANKS’ STRATEGIES

Further consolidation is likely at all levels of the system in order to reduce the difference in cost of funding and to expand regional coverage

Private banks will have to pursue smart strategies to combat their rivals…

EXAMPLES:VTB Group (VTB; VTB-North-West /former PSB/; VTB24 /former GUTA/)

URSA Bank (Sibakadembank and Uralvneshtorgbank, Vostochniy Express – under consideration + another 4 regional banks in the alliance)

Konversbank (Bankas Snoras, Latvijas Krajbanka, Investbank, Grancombank, Yenisei, Baikalinvestbank, Voronezhprombank …

Move into higher yield and less competitive areas of business

Focus now on Small Business banking and retail products

Looking to regions, where the level of competition is still low

Providing cross-sale opportunities

Increasing the share of funding raised inside the RF

Having a more careful approach to borrowers and risks

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RUSSIA – THE PLACE TO BE

BANKING SECTOR – THE PLACE TO STAY

COMPETITIVE ENVIRONMENT

PRIVATE BANKS’ STRATEGIES

RUSSIAN BANKS VS GLOBAL LIQUIDITY SQUEEZE

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THE STATE IS COMITTED TO SUPPORTING BANKS

The liquidity problem is the most significant risk facing Russian banks, but the Government and the Central Bank are committed and equipped to protecting Russia from the global crisis.

Refinancing tools: Primarily direct repo with the Central Bank, in addition to other refinancing tools such as Lombard loans or currency swaps. Nearly RUB 1.3 trln in bonds are eligible for direct repo with the CBR as of the beginning of October.

CBR plans to expand the list of assets it can lend against by adding debt of BB-/B+ rated issuers (over RUB 150 bn of bonds affected). Federal Mortgage Agency plans to offer repo against mortgage loans.

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RUSSIAN BANKS ARE IN GOOD SHAPE NOW

Banks managed to close a series of debt and equity deals immediately before the liquidity crisis

Redemption schedule of external debt raised in wholesale markets is relatively benign

Some banks are more exposed than others, but there are factors (owner support, short assets) mitigating that

MDM successfully attracted 1-year, USD 200 mln Equivalent Dual-Currency USD/EUR Syndicated Term Loan Facility in November.

In October, we successfully repurchased RUB 6 bn ruble bonds and placed them back to the market

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RUSSIA IS A SAFE PLACE TO INVEST…

THANK YOU!

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OUTLINE: MDM BANK

Established in 1993 as a Moscow-based bank focused on foreign exchange

Today one of the largest Russian privately-owned financial institutions with a national network

Universal bank: retail, corporate, investment banking, small business banking, private banking and asset management

7,000 corporate, over 3,500 small business, and over 300,000 retail clients

Focus on value growth

Strategic goals: maximum synergies out of the universal model; strong brand; increasing share of regional business; best-in-class infrastructure

Intention to remain predominantly Russian-owned

Leader in corporate governance practices in Russia; the only Russian financial institution with a corporate governance rating from Standard & Poor’s (rating: CGS 6+, last increased in December 2006)

Business is based on financial intermediation between parties non-related to the Bank