Delta Bank No. 1 in consumer finance in Ukraine Delta Bank No ...

Presentation

2006–2008

Delta Bank No. 1 in consumer finance in Ukraine

Delta Bank No. 1 in consumer finance in Ukraine

Overview of Macroeconomic Environment and Banking Sector

Ukraine has continued its high economic growth record performance for the past five yearsRecord high NBU international reserves ($37bn)Longterm rated B1 (positive outlook) and B+ (stable) by Moody’s and Fitch respectivelyRapid wage growth expected to continue, on the back of strong GDP and given that Ukrainian wages remain low, highlights the growth potential of the banking sectorStable monetization progress to support economic growthRecent WTO accessionStable currency and strong fiscal performanceSignificant government spending on infrastructure, driving productivity growthExtensive deregulation and liberalization

•••• •••••

Increasing levels of disposable income, decreasing inflation and a large young population create a favorable environment for the banking sector Financial stability and strong economic growth in Ukraine stipulate robust development of the banking sector to service increasing financial flows (bank assets to GDP is 83% as of 2007YE) Low penetration of the banking sector (62% loans/GDP; 39% deposits/GDP) and retail services in particular (only 35% share of retail loans in total loan portfolio) provide ground for further growth Public confidence in the sector increased substantially over the past few years with retail bank deposits rising rapidly

•

•

•

•

1

Brief Overview

Banking Sector

Key figures

2007 2008E 2009F

Real GDP, % 7.6 6.9 6.3

Consolidated fiscal revenues, UAH bn

219.9 311.5 394.1

Consolidated fiscal deficit, % of GDP

1.1 1.5 1.9

Current account balance, % of GDP

4.2 6.1 6.5

Net Foreign Direct Investment inflow, USD bn

9.2 8.0 10.1

Money supply, UAH bn 391.3 576.1 735.7

Consumer Price Index, % aop

12.8 26.0 16.0

2001 2002 2003 2004 2005 2006 2007Total Assets ($bn) 7.9 12.7 16.6 26.7 42.4 67.4 118.5Total Credits ($bn) 5.4 7.9 12.7 16.7 28.4 53.4 87.6Total Deposits ($bn) 4.8 7.1 11.5 15.6 26.3 36.2 55.5

Structural Information Number of Banks 189 182 179 182 186 193 196Assets of Top 10 Banks (% of Total) 53.3% 50.8% 52.7% 52.1% 55.8% 52.4% 51.2%

Market Share State owned Banks n.a. 12.0% 9.5% 7.7% 9.3% n.a. n.a.Market Share Foreign owned Banks n.a. 7.0% 7.5% 7.1% 17.3% 27.6% 35.0%

Profitability and Efficiency Return on Assets 1.2% 1.2% 1.0% 1.1% 1.3% 1.6% 1.5%Return on Equity 7.5% 8.0% 7.6% 8.4% 10.4% 12.2% 12.7%Total Capital Ratio 20.7% 18.5% 14.4% 16.8% 15.0% 14.2% 13.9%NIM n.a. 6.0% 5.8% 6.1% 5.8% 5.9% 4.9%Average Interest Rate Spread 16.2% 13.4% 10.7% 7.8% 6.2% n.a. n.a.

E – estimate, F – forecast Source: Derzhkomstat, NBU, State Treasury, IER calculations and forecast

Source: National Bank of Ukraine

Ownership Structure

35yearold founder and original CEO of Bank DeltaPersonal Details: Education: Degree in Accounting, Ph. D. in Economics from Kyiv National Economic UniversityProfessional Experience: • exshareholder of a top5 bank in Ukraine• 12 years of banking experience• over 6 years in Board level positions • Entrepreneur of The 2007 in Ukraine by Ernst&Young

2

Nikolay Lagun

Icon Private Equity is a leading private equity fund in Russia and Ukraine with over $1 billion under management. The fund invests in fast growing financial, telecommunications, media and IT companies and in retail trade projects in Russia and the CIS. Icon’s mission is to achieve effective partnership with market leaders that would significantly increase their value. The fund’s team has dynamic experience in the successful execution of private equity projects and vast expertise in corporate governance.

Icon Private Equity

49%

51%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Delta Bank at a Glance / Market Position

3

Key Performance Indicators as of September 01, 2008 Position

Consumer loans issued in ‘0608 $1,2 Bn No.1

Total number of active customers 1,400,424 Top 5

Total customer base 2,081,245 Top 8

New clients acquired per month 37,000 No.1

Credit cards issued per month 57,000 No.1–2

Total Retail Loan Portfolio $563 Mio 14th*

Credit Card Loan Portfolio $320 Mio Top 2

Retail Deposit Growth to 01.01.2008 470% No.1

Number of retail partners 680 No.1

Sales Outlets (Card, Cash) 2,099 No.1

Number of employees 6,809

Source: Delta Bank`s estimate* according to National Bank of Ukraine as of 01.08.2008

Competitive Landscape

4

Major Players Strengths Weaknesses

strong management team largest sales network (incl. strategic

cooperation with UkrPost) strong growth in retail deposits very strong credit card business

unparalleled risk management expertise powerful customer service (collection) center

highcost POS network

largest network of branches large customer base

access to funding developed credit card products

wellknown brand

no key focus on the segment poor manageability due to large scale

access to key retailer chains full support from SG access to funding

nonbanking institution no revolving credit card product

relatively small POS network

aggressive strategy to access key retailers access to funding from Alfa group

solid franchise in car loans

no key focus on the segment aggressive pricing leads to low APR

no revolving credit card product

access to funding from parent group weak local team

failure to access key retailers no credit card product

Delta Bank: Consumer Focused Model

5

Consumer Credit

Main Sales Channels

CashLoans

CreditCards

CarLoans

PersonalLoans

SalesFinance

POSs inShops / Partners

Credit CardDeposit CardPaper LoansCash Loan

Corporate Sales

Credit CardDeposit Card

Branches

DepositsCredit Card

Deposit CardCash Auto

Brokers

Credit CardDeposit Card

Other SalesChannels:

UkrPost

Internet banking

Telemarketing

POS loans forpurchase ofconsumer

goods

Nonpurposeinstallment

loans

Channels

Products

Revolvingprivate labelcredit cards

RevolvingCreditCards

Used Cars

New Cars Home EquityLoans

Nonpurposeloans issued at

bank offices

Overview of Major Products

6

It is planned to almost double theRetail Loan Portfolio in 2008

POSLoans

Share of RetailLending Portfolio

Jan2008Product Comments

Traditional Delta Bank product

Over 2,000 points of sale (POSs)

Client acquisition channel

Market leader (share 20–25%)

65%

CreditCards

Yearend target around 2m active cards

Cards for subprime segment (basic functionality focused on lending)

Market leader in cards issuing (over 100,000 per month)

Instant card technology – client receives functioning card in 30 minutes

31%

CashLoans

Introduced in Q4 2007

Focus on distribution through alternative channels (UKrPost)

Distribution through branches, brokers, agents

4%

Car Loansand Secured

Lending

Used car lending introduced in Q3 2007

New car lending to be introduced in Q2 2008

Home equity loans considered for end 2008 / beginning 2009

0%

Dec2008

34%

59%

6%

1%

0,00

100 000,00

200 000,00

300 000,00

400 000,00

500 000,00

600 000,00

700 000,00

800 000,00

01 Ja

n 20

08

01 M

ar 2

008

01 M

ay 2

008

01 Ju

l 200

8

01 S

ep 2

008

01 N

ov 2

008

01 Ja

n 20

09

Card

Cash (card)

Cash

Secured

Auto

POS Loans

Source: Delta Bank Projections

Strategy – Funding

7

Favorable debt and market conditions

Emphasis on unique strategy and growth prospects

Lack of similar financial sector issuers from Ukraine

Aggressive pricing and shortterm tenor

Luck

Building credit history

Issue of debut IFRS audited statements

Started preparation towards an international and a local credit rating

Debut assetbacked financing paved the way to fullfledged securitization

Launch debut retail deposit program

Increase scale of retail deposit campaign through extensive POS outlets and UkrPost network

Launch debut SME deposit program

Launch deposit program for local insurers and assets managers

Wholesale FundingApproach

2006

Diversification ofWholesale Sources

Building LocalFunding Franchise

2007 2008

0–9 Months 9–18 Months 18–30 Months

• No. 1 local bond issuer in 2006 • In November 2006, Delta pioneered consumer loan ABS in Ukraine

• 11 bond issues in 2006–2007 for the total amount of nearly $400m • Successfully repaid all2006 bonds • Balanced liabilities structure

• $540 Mio retail deposits to be collected in 2008• Public “True Sale” securitization deal is being prepared for Q4 2008 – Q1 2009

LongtermStrategy: Diversified portfolio with strong local funding and without dependence on any single source

2006YE 2007YE 8M2008Foreign Debt

Local Debt

Corporate Deposits

Retail Deposits 80%51%

24%

16%

21%39%

12%

28%

10%11%

0%

9%

Funding TimelineUSD

20,000,000equiv.

UAH denominateddomestic bond1year maturity

Sep 2006

USD20,000,000

equiv.UAH denominateddomestic covered

bond36 months maturity

Oct 2006

USD80,000,000

equiv.UAH denominated

domestic bond1year maturity

USD 7,500,00equiv.

UAH denominateddomestic

covered bond

USD22,500,000

equiv.UAH denominated

domesticcovered bond

Dec 2006

USD40,000,000

equiv.UAH denominated

domestic bond1year maturity

Nov 2006

USD100,000,000

equiv.Udomestic AH

denominated bond1year maturity

Mar–May 2007

USD75,000,000

equiv.UAH denominated

domestic bond1year maturity

Oct–Nov 2007

USD20,000,000

equiv.

Total attracted: USD 390 mio

Total repaid:USD 365 mio

Outstanding:USD 25 mio

UAH denominateddomestic bond1year maturity

Jan 2008

USD30,000,000

certificate of deposit1year maturity

Sep–Nov 2007

USD5,000,000

certificate of deposit1year maturity

Feb 2008Attracted

Repaid

USD 40,000,000equiv.

UAH denominateddomestic bond

USD 20,000,000equiv.

certificate of deposit

USD 60,000,000

equiv.UAH

denominateddomestic bond

USD 40,000,000

equiv.UAH

denominateddomestic bond

USD 75,000,000

equiv.UAH

denominateddomestic bond

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Jan Feb Mar Apr May Jun Jul Aug SepOct Nov Dec

2006 2007 2008

USD20,000,000

equiv.UAH denominated

domestic bond

USD 80,000,000

equiv.UAH denominated

domestic bond

Delta Bank has an impeccable trackrecord in fulfilling its obligations

8

Strategy Deposit Program

9

Maximize utilization of existing Delta branch networkOffer attractive conditions (price) for deposit programsAggressive advertising and promotion of deposit programsImplement core banking system to be able to offer full service transaction banking services (current account and salary account)Explore alternative means of deposit attraction (UkrPost, branch agency concept)

Key Strategic Initiatives In Deposits

Delta Bank manages to attract 115% ofplanned volume of private individuals’

deposits in 1H2008

With a massive deposit program started only in December 2007 Delta Bank got to a fantastic 11th place in retail deposit

acquisition among Ukrainian banks

Bank

Funds of private individuals

01.01.2008 01.07.2008Increase in

1H2008Share in

increase (%)

Number of branches at 01.07.2008

0 All banks of Ukraine 125 613 553 147 273 114 21 659 561 100% 23 5781 PrivatBank 17 649 454 21 488 311 3 838 857 17,70% 2 9702 Nadra 5 038 658 6 851 590 1 812 932 8,40% 7013 PromInvestBank 6 536 084 7 863 846 1 327 762 6,10% 9664 Finance and Credit 4 220 891 5 451 363 1 230 472 5,70% 3925 Oshchadbank 3 865 300 5 069 511 1 204 211 5,60% 6 1406 Ukrprombank 5 783 684 6 873 465 1 089 781 5,00% 3057 UkrEximBank 4 572 658 5 652 773 1 080 116 5,00% 1448 Rodovid Bank 2 685 039 3 633 997 948 958 4,40% 1569 Ukrgazbank 2 549 875 3 454 582 904 707 4,20% 329

10 Raiffeisenbank Aval 10 900 763 11 683 388 782 625 3,60% 1 18511 Delta Bank 215 017 830 099 615 082 2,80% 3612 FUIB 1 536 142 2 096 769 560 626 2,60% 12713 Bank Kyiv 1 323 509 1 770 444 446 935 2,10% 11214 CB Hreshchatyk 1 062 761 1 481 462 418 701 1,90% 15615 Alfa Bank 333 349 697 512 364164 1,70% 53

4 Finance and Credit

312

360

0

50

100

150

200

250

300

350

400UAH,

mio

Planned

Actual

A recordbreaking retail deposit per branch acquisition ratioof 721 thousand USD is more than 5 times higher then in peer banks

Branch Network & Expansion

10

Geography of Bank’s POS Network as of 01.08.2008Bank’s Units as of 01.08.2008

Increasing a number of POSes at UkrPost is a strategic priority for 2H2008

Branches

Promo Outlets

POS Outlets

Total POS and Promo Outlets

47

365

2,116

2, 482+ Head Office

The plan for 2008 is to open 38 more branche

Source: Management data

Ivano Frankovsk(45 )

(28 )Chernovtsy

(59)Khmelnytsky

Uzhgorod

(27)

Lvov

(137) Ternopol(52)

Lutsk(44)

Rovno(47)

Vinnytsya(56)

Zhytomyr(53)

Chernigov(45)

Sumi(38)

Kiev(189)

Poltava(61)Cherkasy

(46)

Kharkov(121)

Lugansk(115)

Donetsk(162)

Mariupol(16)

Zaporozhye(131)

Krivoy Rog(68)

Kirovograd(54)

Kherson(66)

Simferopol and Crimea(125)

Nikolaev(85)

Odesa(105)

Dnepropetrovsk(124)

BelarussiaMinsk

0

50

100

150

200

250

01.06.2008 01.07.2008 01.08.2008 01.09.2008 01.12.2008F

Strategic Cooperation With UkrPost

11

• Never before done in Ukraine• Development of a new deposit collection channel, which is: 16,000 post offices 45,000 postmen Penetration into a greater part of towns and villages of Ukraine• Increase of number of retail deposits

• A 5year exclusive agreement with UkrPost, from mid–2006• Provides Delta with unparalleled coverage in Ukraine through its network of 16,000 post offices across the country• Delta Bank supplies UkrPost with: Own computers Software Ongoing training• The Bank has an exclusive agreement for: Debt repayment Collection of deposits Loan granting• More Delta’s own employees to be installed in UkrPost outlets in the future• Current agreement requires Delta’s approval for any other operator to cooperate with UkrPost

Акція діє з 26.06.2008р. по 01.10.2008р.

Банк є учасником Фонду гарантування вкладів фізичних осіб. Свідоцтво № 178 від 27.04.2006

Innovation – the “POSTMAN” sales channel

Deposits through UkrPost, projections, tsd USD

Exclusive Partnership with Ukrainian Post

Share of Loan Repayments through UkrPostgrowth with every month

0,00%5,00%

10,00%15,00%20,00%25,00%30,00%35,00%40,00%45,00%50,00%

702 2 355

7 231

14 335

23 324

33 860

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

Jul 2008 Aug 2008 Sep 2008 Oct 2008 Nov 2008 Dec 2008

Retail Banking Market Segmentation

12

Bankable Population Higher Middle HNWI

Characteristics

Mo

nth

ly N

et In

com

e ($

)

Bankable Population, Age

Over 2,200

600–2,200

300–600

200–300

<200

20–24 25–2915–19 30–49 50–59 60 +

7.3

2.7

0.6

17.5

6.6

Upper & Lower Middle

HNWI

Middle and Promising

Mass

xx.x Headcount of client group, mio

A 28yearold branch manager Monthly income of $2,800Middleclass foreign car (VW)Rents an average apartment in KievConsumptionoriented lifestyle

•••••

Banking Needs Sophisticated 360o servicingInvestment productsMortgages for elite housing

•••

Characteristics A 35yearold IT specialist, working for one of the largest Ukrainian companiesMarried, 2 childrenMonthly income of $900Lowclass foreign car (Chevrolet)Rents an apartment, but hopes to buy a flat in suburbs

• ••••

Banking Needs Current account and debit / credit cardsMortgage loan or car loan

• •

Lower Middle

Characteristics A clerk in a small companyMonthly income of $450Lowclass domestic car (Lada)Spends 80% of income on consumer goodsNo substantial savings

•••• •

Banking Needs Standard account / debit cardConsumer finance

••

Characteristics A 48yearold construction worker in BerdyanskFamily 2 children No carwith Does not trust banks

• •••

Banking Needs Salary accountDebit card

••

Mass

Source: SMG / KRC, 20042006; GfK; Ukrgosstat; Ukrainian Ministry of Finance Note: Population over 15 years old

Segment of Delta Bank = 75% of Bankable Population

Superior Risk management

The first Ukrainian retail bank to develop strong risk management functionsLed by a team of top specialists with experience from other CEE / CIS countriesExpected losses below 5–6%

•••

Developed a stateoftheart scoring system (KolmogorovSmirnov score – “KS” – close to 40%)Effective collection strategy (with 200–220 contacts per day), monitoring and fraud prevention systemsConstant benchmarking and motivation of sales force on risk numbersRisk management division consisting of four departments:

••••

First default below 3% for POS loans and 9% for credit cardsLate delinquencies (90+ days overdue) for recent vintages are around 2% for POS loans and 4% for credit cards

••

Credit policy – with the most advanced scoring system in the market Underwriting – a multistage system, processing up to 50,000 applications per day, 24/7, making it one of Ukraine’s largest client databasesCollections – a threefold system ranging from full call / SMS notifications, to persistent calls to relatives, neighbors, friends and employersFraud prevention and detection – monitoring of merchants (POS) and sales staff, detecting fraud trends as well as testing monitoring applications

••••

13

Delta Bank’s risk management function is arguably one of the most sophisticated among Ukrainian banks

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

01.02.2008 01.03.2008 01.04.2008 01.05.2008 01.06.2008 01.07.2008 01.08.2008 01.09.2008

Paper

Card+Cash

0

500

1 000

1 500

2 000

2 500

3 000

Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Jul 2008 Aug 2008

Overall1st Defaultratio dropsbelow 3%

Collection:UAH perhour per one

operator

Source: Management data

Superior Risk management

14

POS loans of 90+ days past due by months on books

Portfolio quality is continuously being improved

Jan 2007 Apr 2007 Jul 2007 Sep 2007 Dec 2007

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Source: Management data

Months

POS loans of 30+ days past due by months on books

0%

2%

4%

6%

8%

10%

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Months

%

%

Loan Portfolio Statistics

15

Loans Issuances (POS+Cards)

Retail Loan Portfolio (POS+Cards)

0,0

20,0

40,0

60,0

80,0

100,0

120,0

140,0

0

50 000

100 000

150 000

200 000

250 000

300 000

Number of loans issued Loans issued

USD, Mio

0

100

200

300

400

500

600

Loans portfolio, USD Mio

Average MoM growth rate – 14,4%

Loan Portfolio Statistics (Cont’d)

16

POS Loan Portfolio by Type of Goods as of 01.09.2008 Cash & POS Loan Portfolioby Loan Amounts as of 01.09.08

Cash & POS Loan Portfolioby Residual Maturity as of 01.09.08

2,5% 5,1%4%

4%

1%

14,1%

32,1%

27,7%

5,5%

3,1% 9,9% below $200

$200$300

$300$500

$500$1,000

$1,000$2,000

$2,000$3,000

$3,000$5,000

over $5,000

7%3%

3%

15%

33%

39%

below 1M

12M

23M

36M

612M

over 12M

Audio/Video/DVD

Domestic tech

Computers

Furniture

Mobile phone/Palms

Motor bikes

TV

Construction materials

Other

27%

18%

6%7%

17%

16%

Delta Bank Call Center – Key to a Top Quality Customer Service

The key to success for our business is emphasis on the best possible client service together with the realization of their financial needs

•

17

Client Focus Continuous Service Development

SL 80/20 Hot – Line*

“Marketing Relationships” aiming toward maintaining the current clients as well as gaining new clients in order to establish a mutually benefiting longterm relationship The main task of the call center is to maintain a high quality and consistent level of service. It is important for us not to overlook a single request from any of our clients and that all requests are solved in a timely manner

•

•

The Core Concept

Clientoriented and a personalized approach Selection and training of personnel oriented towards providing the best service and possible solutions to the client

Presence of automated banking systems that allow for faster informationhandling and decisionmaking processes with the goal of reaching and further developing longterm relationships with clients

• •

•

Key Client Service Strategies

Number of Incoming Calls

Number of Calls Serviced by HotLine operators

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

05.2

007

06.2

007

07.2

007

08.2

007

09.2

007

10.2

007

11.2

007

12.2

007

01.2

008

02.2

008

03.2

008

04.2

008

05.2

008

06.2

008

07.2

008

08.2

008

0

100 000

200 000

300 000

400 000

500 000

04.2

007

05.2

007

06.2

007

07.2

007

08.2

007

09.2

007

10.2

007

11.2

007

12.2

007

01.2

008

02.2

008

03.2

008

04.2

008

05.2

008

06.2

008

07.2

008

08.2

008

09.2

008F

** Note: SL 80/20 (service level 80/20) is a standard for response time which means that an incoming call should be received in 20 seconds. The optimum efficiency level is 80%Source: Management data

Key Financial Indicators

18

*F forecast Source: Management Data

USD Million, end of period

Total Assets

Total Loan Portfolio

Capital

Net Interest Income

Net Fees and Commission Income

Operating Income

Operating Expenses

Administrative Expenses

Net Income before Provisions and Taxation

CIR

ROA

ROE

NIM

1Q 2007

352.9

241.8

78.7

(1.6)

13.1

22.7

(9.3)

(2.7)

0.2

65.03%

0.32%

1.33%

20,53%

2Q 2007

398

252

78.8

(3.7)

26.9

51.3

(21.8)

(6.1)

2.0

74.65%

0.20%

0.92%

16.86%

3Q 2007

442

322

78.7

(3.8)

43.1

83.0

(35.6)

(11.0)

1.8

85.58%

0.03%

0.16%

21.61%

4Q 2007

705.7

514.6

111.0

(5.1)

65.8

127.0

(53.3)

(20.1)

2.5

87.82%

0.23%

1.37%

20.80%

1Q 2008

930.9

641.8

113.9

31.2

(2.6)

56.6

(26.7)

(4.7)

4.9

49.50%

2.36%

18.34%

17.04%

2Q 2008

1 001.1

710.1

120.1

68.3

(4.2)

124.5

(60.1)

(14.0)

10.1

69.66%

1.82%

14.84%

16.70%

2008 F*

1 271.7

883.6

127.0

154.0

(12.7)

278.9

(142.7)

(33.5)

21.2

65.26%

1.49%

13.03%

17.89%

Contact information

Mr. Viktor Guroma,Head of FI Department, �TreasuryPh. 38 044 3915135Fax 38 044 3915111Email: [email protected]

Mr. Vitaliy Masyura,First Deputy Chairman ofthe Board of DirectorsPh. 38 044 3915100Fax 38 044 3915112Email: [email protected]

Mr. Oleksiy Sukovaty,Deputy Head of FI and Debt Origination Division, TreasuryPh. 38 044 3915135Fax 38 044 3915111Email: [email protected]

Disclaimer

The information contained herein has been obtained from sources believed by Delta Bank (‘Delta’) to be reliable.Whilst all reasonable care has been taken to ensure that the facts stated herein are accurate and that the opinions and expectations contained herein are fair and reasonable, no representation or warranty, express or implied, is made by Delta or any of its respective agents or affiliates with respect to the fairness, completeness, correctness, reasonableness or accuracy of the information, opinions and expectations contained herein.Any opinion, estimate or projection in this presentation constitutes an opinion, estimate or projection as of the date of this presentation, and there can be no assurance that the future financial or other performance of Delta will be consistent with any such opinion, estimate or projection.The information in this presentation is subject to change without notice, it may be incomplete or condensed, and it may not contain all material information concerning Delta.