UniCredito Italiano - New Europe Research Network

The New Europe Research Network of UniCredito Italiano presents today the "New Europe Banking Report 2003", the first issue of a survey which will be updated and published each year as a contribution to the analysis of the banking systems of this European region, where the Group has a strong presence since 1999.

• The countries negotiating their way to join the European Union (the "New Europe") represent a vast market growing at a significantly higher pace than the average of EU, albeit with a mixed trend. Overall stability and risk levels of the region have also been markedly improving over the past few years.

• The overall size, the expected gradual GDP catch-up with EU, the convergence-driven fiscal discipline and relative under-banking make New Europe one of the few promising and relatively bright spots for banking worldwide.

• Given total assets/GDP at 68% in New Europe in 2002 versus 270% in the European Union, the New Europe banking assets are expected to grow at a compounded annual growth rate of 9.5% in the next three years, with lending activity particularly buoyant to complement economic growth.

• In 2002 Return on Assets (ROA) at 1.1% in New Europe is already significantly higher than the 0.5% recorded in 2002 for the largest EU banks, more than compensating the higher cost of capital required. The profitability outlook seems quite positive, albeit depending on a not too distant recovery of the EU economy.

• An interesting and noteworthy feature of the New Europe banking landscape is the much bigger role played by International Banking Groups compared with a still overwhelmingly domestic structure of retail and mid-corporate banking in almost any EU market.

• Some seven to eight international players have become clear leaders in the region. Among them UCI, KBC and HVB stand out for combination of asset size, breadth of branch network and returns achieved, but the scenario is very dynamic and also Erste, Intesa, Societе Generale, Raiffeisen and Citigroup are experiencing sizable progress, while a few other participants such as ING, S.Paolo, GE Capital, OTP, National Bank of Greece, EFG and Volksbank are also developing a multi-country presence. The privatisation opportunity window is closing, though, with only a handful of sizable banks still in the privatisation pipeline.

• The role of foreign owned banks has already proven to be very significant to bring capital and know-how that are fundamental at this stage of development of the NE countries to support the expected growth.

• UCI has invested in the last 5 years 2.6 bln euro in the region and the New Europe now weights 14.1% of Group?s total revenues.

• UniCredito Italiano Group is among the leading competitors in the Italian market, with a market capitalisation of 24.5 bln ? (as at 10th June 2003) and a net income of 1,801 mln ? for 2002. It also ranks among the top 20 international financial groups. In 2002 the overall C/I ratio reached the value of 54.3%. The Group may rely on a pre-tax ROE of 28.6% and ROE of 17.2%. Besides it counts 4,176 branches around all over the countries where it is present.

• As a strategic investor UniCredito Italiano considers Bulgaria an important platform for deploying its strategy in New Europe. During the last 3 years the macroeconomic environment confirmed the positive expectations in terms of GDP growth, moderate inflation and tight fiscal discipline. The business environment in the country is constantly improving. EU accession is both a strategic priority and driver for development.

• Bulgarian banking sector is growing fast with great potential, yet with still low level of banking penetration compared to other New Europe countries. More than 86% of assets are now owned by established foreign investors, who contribute to the introduction of new commercial models, product enrichment and improvement in quality of service. Competition is enhancing bringing loans up, more than 40% in 2002, confirming the important role of banks in the development of economy. The banking system is quite stable also due to the support of the tight supervision on part of the Bulgarian National Bank.