ESTONIA, LATVIA, LITHUANIA - BANKING MARKETS IN THE BALTICS 2009-2011 - CEE BANKING BRIEF

ESTONIA, LATVIA, LITHUANIA - BANKING MARKETS IN

THE BALTICS 2009-2011 - CEE BANKING BRIEF

by Inteliace Research

November 2009

Version: 2009/04

Inteliace Research

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TABLE OF CONTENTS (1/2)

1. Macroeconomic overview Slide 1: Executive summary Slide 2: Baltic countries – population, area and GDP contribution, 1H2009 Slide 3: Gross domestic product evolution, 2002- 1H 2009; GDP per capita 1H 2009 Slide 4: Inflation, C/A balance, 2002- 1H 2009 Slide 5: Wages & salaries, 2002-2009; unemployment rates 1H 2009 Slide 6: Yield curves, 1H 2009 Slide 7: CEE banking markets: size vs. growth matrix, 2006-2008 Slide 8: CEE banking penetration benchmarks - International comparison, 2008 Slide 9: Banking assets evolution by country, 2002- 1H 2009, penetration benchmarks 1H 2009 Slide 10: Top 5 banking groups in Baltic countries, combined market share, 1H 2009 Slide 11: Retail deposits & loans by country comparison; per capita benchmarks, 1H 2009 2. Estonia Slide 12: Top 10 banks by assets; market share; ownership structure, 1H 2009 Slide 13: Banking market concentration – benchmarks; Herfindahl-Hirschman Index Slide 14: Customer deposits by origin evolution, 2005- 1H 2009 Slide 15: Customer loans by origin evolution, 2005- 1H 2009 Slide 16: Payment infrastructure POS, ATM penetration and evolution, 2002- 1H 2009 Slide 17: Payment cards evolution, penetration, 2002- 1H 2009

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TABLE OF CONTENTS (2/2)

3. Latvia Slide 18: Top 10 banks by assets; market share; ownership structure, 1H 2009 Slide 19: Banking market concentration – benchmarks; Herfindahl-Hirschman Index Slide 20: Customer deposits by origin evolution, 2005- 1H 2009 Slide 21: Customer loans by origin evolution, 2005- 1H 2009 Slide 22: Payment infrastructure POS, ATM penetration and evolution, 2002- 1H 2009 Slide 23: Payment cards evolution, penetration, 2002- 1H 2009 4. Lithuania Slide 24: Top 10 banks by assets; market share; ownership structure, 1H 2009 Slide 25: Banking market concentration – benchmarks; Herfindahl-Hirschman Index Slide 26: Customer deposits by origin evolution, 2005- 1H 2009 Slide 27: Customer loans by origin evolution, 2005- 1H 2009 Slide 28: Payment infrastructure POS, ATM penetration and evolution, 2002- 1H 2009 Slide 29: Payment cards evolution, penetration, 2002- 1H 2009 5. Mid-term forecasts Slide 30: Forecast : Estonia - Bank assets & asset/GDP penetration, 2009-2011 Slide 31: Forecast : Latvia - Bank assets & asset/GDP penetration, 2009-2011 Slide 32: Forecast : Lithuania - Bank assets & asset/GDP penetration, 2009-2011 6. Methodological notes

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EXECUTIVE SUMMARY – BANKING MARKET IN THE BALTICS, 2009

• Macroeconomic situation. The last months of the year 2008 and the first half of 2009 were not particularly successful for Baltic economies. Bursting real estate bubbles, exploding unemployment, drastic cuts in the public sectors and following dramatic drops in GDP - all those factors confirmed that Baltic countries were among regions most affected by the first wave of the worldwide economic crisis. Estonia, Latvia und Lithuania slid into a deep recession very rapidly paying the price for several years of exceptional growth fueled by the abundant funds, provided mostly by Scandinavian banks.

• Banking markets. Despite the painful rebalancing of the economy, the well developed banking infrastructure including: dense branch, ATM and POS networks, as well as common use of remote banking channels place Estonia, Latvia and Lithuania still among the most advanced banking sectors in the whole Central and Eastern Europe. This is also confirmed by banking penetration benchmarks , which despite recent dips, still exceed the CEE average.

• Competition. In contrary to the rest of CEE, Baltic banking sectors have been historically highly concentrated. Top 5 international groups present in all 3 countries control more than 77% of combined banking assets. On the other side lack of major administrative entry barriers and current weakness of major players , make Baltic markets still interesting opportunity for new entrants.

• Perspectives. The recent economic tensions forced governments in Baltic countries to apply radical public spending cuts , resulting in accelerating unemployment and a collapse in private consumption. All those factors will obviously drag down the rate of growth in all Baltic countries in the near future. Nevertheless, Baltic economies are relatively flexible, viable and of relatively small size, so after the temporary correction, they are likely to resume growth quicker than other larger countries. Inteliace Research assumes that both GDP and banking volumes in Baltic countries will keep falling through 2010 , when the trend is likely to reverse.

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TABLE OF CONTENTS

General overview

Estonia

Latvia

Lithuania

Mid-term forecast

Notes on Methodology

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Source: Statistical offices, Central banks

Baltic countries - combined statistics, 1H 2009 Percent

1926 22 27

33

3732

40

4837

4533

Population Territory GDP Banking

Assets

175 thsd. sq km

6.95 million

EUR 66 billion

100%=

ALMOST 7 MILLION WELL EDUCATED INHABITANTS AND 66 BILLION EUR OF GDP

MAKE BALTIC COUNTRIES AN ATTRACTIVE MARKET FOR BANKING SERVICES

Estonia

Latvia

Lithuania

• Lithuania is the largest country in the group with almost 50% share in population, 45% share in GDP, but only 33% share in banking assets.

• Estonia is the smallest Baltic country, but it has relatively the highest GDP contribution per capita.

• Latvia has the largest banking market in terms of total assets.

EUR 77 billion

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Inteliace Research

7.9 7.6 7.2 9.4 10.0

7.2

-3.6

-15.5 11.1

9.5

8.9

7.4

6.5 7.2 8.7 10.6 12.2

10.0

-4.6

-18.4

6.9 10.2

7.4 7.8 7.8 8.9 3.0

-17.0

2002 2003 2004 2005 2006 2007 2008 1H09

SINCE LATE 2008, BALTIC ECONOMIES ARE EXPERIENCING A DRAMATIC

REBALANCING

Gross Domestic Product – Real growth rate, 2002-1H2009 Percent

* Average for top 15 Countries in Central and Eastern Europe. Russia, Ukraine and Belarus not included ** Data for 4 consequtive quarters ending in June 2009 Source: Central banks, Inteliace Research

Estonia

Latvia

Lithuania

Estonia

Latvia

Lithuania

GDP per capita, 2Q 2009** EUR thousand

+21%

+24%

+28%

Cumulated real growth index 2002-1H2009

CEE15* (2008)

+50%

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Latvia

Lithuania

Estonia

3.6

1.4

3.0 4.1 4.4

6.6 10.4

1.4 2.0

2.9

6.2 6.9 6.6

10.1

15.4

7.0

0.3 -1.1 1.2

2.7 3.7

5.7

10.9

6.9

2002 2003 2004 2005 2006 2007 2008 1H09*

AFTER REACHING ITS PEAK IN 2008, INFLATION IS SLOWING DOWN.

CURRENT ACCOUNTS ARE FINALLY BALANCED

* Average 1H 09 vs. 1H 08 Source: Central banks, Inteliace Research

Estonia

Latvia

Lithuania

Average Inflation, 2002-1H2009 Percent

Current account balance as % GDP 1H 2008-1H2009

Drastic government spending rcuts and quickly falling inflation have contributed to significant reduction of

c/a gaps in all Baltic countries.

Inflation has peaked in 2008, but since then it is falling rapidly -16.0

-9.7 -6.9 -5.1

-0.4

4.9

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

8

-16.7 -15.1 -12.8 -7.8

1.3

14.1

-18.9 -15.6

-9.8 -4.4

0.4

-0.2

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13.5

15.3

12.8

HIGH UNEMPLOYMENT IS POSING THREAT TO THE WHOLE ECONOMY. HOWEVER,

FALLING WAGES ARE LIKELY TO PREVENT FURTHER JOB LOSSES

* Average value for the 1H of the year Source: Statistical offices, Inteliace Research

Average wages & salaries, 2002-1H2009* EUR per month

Estonia

Latvia

Lithuania

Estonia

Latvia

Lithuania

Unemployment rate, 1H2009* Percent

In all Baltic countries unemployment is getting out

of control

393 430

466 516

601

724

825 794

284 285 300 350

430

566

682 670

294 311 333

370

433

522

624 633

2002 2003 2004 2005 2006 2007 2008 1H09*

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4.65 5.00

5.58

6.32 6.88 7.85

11.40 11.60

20.00

24.20 25.40

23.60

2.45

3.18

5.70

8.56 9.54 10.32

0.40

0.49 0.75 1.09 1.31 1.42

1 day 1 week 1 month 3 months 6 months 12 months

DIVERGENCE OF INTERST RATES FROM EUROZONE IS VERY HIGH.

“CURRENCY BOARD” EXCHANGE RATE SYSTEMS ARE STILL AT RISK

Source: Central Banks, Inteliace Research

Estonia (TALIBOR)

Market interest rates as of June 2009 Percent

Lithuania (VILIBOR)

Latvia (RIGIBOR)

Interest rates

are significantly

above Euro

area levels

Europe (EURIBOR)

10

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Slovakia

* Major 15 CEE countries. Russia, Ukraine and Belarus not included ** Total assets for Baltic countries as of 1H 2009 Source: Central banks, IMF, Inteliace Research

249.7

150.2

121.3

79.0

63.9 51.6

47.5

35.6

30.9

24.9

20.8

20.1 10.8 6.8

4.6

0

2

4

6

8

10

12

14

16

18

20

22

24

10% 15% 20% 25% 30%

Poland

Czech Republic

Hungary

Slovenia

Bulgaria Romania

Estonia**

Latvia**

B&H

Croatia

Albania Serbia

Average annual assets growth (CAGR), 2006-2008, in EUR, %

Ba

nkin

g a

sse

ts p

er

ca

pita

, 2

00

8, `0

00

EU

R

Lithuania**

Moderate growth

CEE15* banking markets - Size vs. growth matrix, 2006-2008

FYRO Macedonia

x.x • Total banking assets, 2008 • In billion EUR data for Baltics as of 1H2009

Rapid growth

BALTIC BANKING MARKETS ARE SMALL IN RELATION TO THE OTHER CEE, BUT

THEY ARE WELL-DEVELOPED IN TERMS OF ASSETS PER CAPITA

Inteliace Research

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Banking assets/capita, 2008 EUR `000

Banking assets/GDP, 2008 percent

23.1

15.5

14.4

13.7

12.1

11.8

11.6

7.4

6.6

4.7

3.6

2.8

2.7

2.2

2.1

Slovenia

Estonia*

Czech Rep

Latvia*

Hungary

Slovak Rep

Croatia

Lithuania*

Poland

Bulgaria

Romania

BiH

Serbia

Macedonia

Albania

144.3

140.6

127.9

124.1

116.7

109.2

104.3

94.9

85.7

83.6

82.3

78.5

69.5

65.0

63.6

Latvia*

Estonia*

Slovenia

Croatia

Hungary

Czech Rep

Bulgaria

Slovak Rep

BiH

Lithuania*

Poland

Albania

Macedonia

Serbia

Romania

CEE 15 weighted

average: 94

BANKING ASSETS PENETRATION IN BALTIC COUNTRIES IS HIGH

CEE 15 weighted

average: 7.4

* Baltic countries as of 1H 2009 Source: Central banks, IMF, Inteliace Research

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Inteliace Research

5.0 6.4 8.4 13.0 17.1 23.4 26.0 24.9

2002 2003 2004 2005 2006 2007 2008 1H09

5.2 6.3 8.5 11.8

15.3 20.5 21.8 20.8

7.3 8.5 11.2 15.6

22.6

31.2 33.1 30.9

ASSETS HAVE BEEN GROWING QUICKLY IN ALL BALTIC COUNTRIES IN THE

RECENT YEARS

Banking assets evolution, 2002-1H 2009 EUR billion

* Compound Annual Growth Rate ** Data from the Central Bank's Balance of Payment Statistics Source: Central banks, Inteliace Research

CAGR*

Estonia

Latvia

Lithuania

23.7

25.0

28.1

Estonia

Latvia

Lithuania

Banking assets/GDP ratio, 1H 2009, Percent

Banking assets per capita, 1H 2009, EUR thousand

+109%

+73%

~77 bn EUR

in 1H2009

141

144

84

13

15.5

13.7

7.4

Estonia

Latvia

Lithuania

Inteliace Research

ESTON

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TOP 6 GROUPS CONTROL ALREADY 82% OF TOTAL ASSETS IN BALTIC

MARKETS

* Total for all 3 Baltic markets

Source: Banks, Inteliace Research

Controlled assets EUR billion Bank

29.9

20.6

8.6

11.5

5.8

Combined market share* percent Rank

5

3

4

2

1

Countries and type of presence

LT EE LV

S S S

S S,B S

B B B

S S

82

B: foreign branch S: local subsidiary

B S S

B

Largest market For the group

TOP 6 total

22.8

15.8

8.8

6.5

4.4

4.0

14

6 5.3 B B B

As of 1H 2009

Inteliace Research

ESTON

IA, LA

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15

Estonia

Latvia

Lithuania

Outstanding value EUR billion

Per capita EUR thousand

Retail deposits

Retail loans

• In nominal terms, retail volumes are highest in Lithuania and Latvia

• Estonian market is small but it is characterized by highest values per capita

• The retail lending exceeds retail deposits already in all Baltic markets

Comparison of retail banking volumes in Baltic countries, 1H 2009

Source: Central banks, Inteliace Research

7.6

8.9

8.5

Estonia

Latvia

Lithuania

3.9

4.1

7.1

5.7

3.9

2.6

2.9

1.8

2.1

+122%

WITHIN RETAIL BANKING, THE PENETRATION OF LENDING VARIES

SIGNIFICANTLY WHILE PENETRATION OF DEPOSITS IS MORE BALANCED

Inteliace Research

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TABLE OF CONTENTS

General overview

Estonia

Latvia

Lithuania

Mid-term forecast

Notes on Methodology

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ESTON

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Total TOP 10 = 20.7

SWEDBANK IS CONTROLLING ALMOST 50% OF BANKING ASSETS IN

ESTONIA

Source: Central bank, press, Inteliace Research

Assets, EUR billion Majority Shareholder (stake)

Top Commercial banks in Estonia, as of 1H 2009

Bank Market Share* by Assets, %

Swedbank

SEB

Danske

Nordea

BIG

DnB Nord

UniCredit

Äripanga

48.9

20.9

14.7

9.5

1.8

0.8

1.1

0.7

SEB (100%)

Swedbank (100%)

Branch of Nordea Bank Finland

JSC Latvian Business Bank (89%)

Branch of Danske Bank

Branch of UniCredit

Leonarda Invest (22%), other corporate

Branch of DnB Nord

>99

Krediidipank

0.9 Private individuals

Foreign bank branches

Parex 0.5 Branch of Parex Latvia

10.2

4.3

3.1

2.0

0.4

0.2

0.2

0.2

0.1

0.1

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Inteliace Research

14

6

1

9

3

84

No of banks Total Assets

BANKING MARKET IN ESTONIA IS HIGHLY CONCENTRATED

Banks by assets size groups, 1H 2009 percent

Herfindahl-Hirschman** Index, 1H 2009 points, nonlinear scale

* Including 7 local banks and 11 foreign bank branches, of which only 2 foreign branches have significant business size ** Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Source: Central Bank, Inteliace Research

10 000 1 800 1 000

3133

high low medium

18 banks* 100%=

EUR 20.8 bn

Big >3bn EUR

Mid-size 1bn-3bn EUR

Small <1 bn EUR

Assets size

Share of top banks, 1H 2009, percent

Estonia Poland

64.2

45.5

33.6

99.7

95.7

84.4

TOP 10

TOP 5

TOP 3

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ESTON

IA, LA

TVIA

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G B

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42 41

41 40 39

29

29

28 30 30 23

24

26 25 25

6

6

5 5 5

2005 2006 2007 2008 2Q 2009

THE VALUE OF DEPOSITS IS STAGNATING SINCE 2007. NON-RESIDENTS

ACCOUNT STILL FOR 25% OF ALL DEPOSITS IN ESTONIA

Customer deposits evolution, 2005-1H2009 EUR billion, percent

100% = 7.9

10.3

12.3 11

CAGR* 2005-1H 2009

Retail

Corporate**

70 78 79 78 GDP penetration in %

12.6

Government***

* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises classified as corporate sector Source: Central Bank, Inteliace Research

18

16

15 12.9

87

• Deposits growth is decelerating • The role of external funding remains high

Non-Residents

13

19

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

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51 51 49 49

39

44

44 44

46

3

3

4

4 2

2

2

1 2

3

2005 2006 2007 2008 2Q 2009

LENDING VOLUMES ARE SHRINKING SINCE 2008. SHARE OF RETAIL LOANS

IS INCREASING

Customer loans evolution, 2005-1H2009 EUR billion, percent

100% = 8.2

11.7

15.9

CAGR* 2005-1H2009

Retail

Corporate**

GDP penetration in %

17.4

Government***

28

17

22

17

74 88 102 108

* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises Source: Central Bank, Inteliace Research

16.4

111

Non-Residents

28

20

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

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G M

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KET IN

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AN

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7,353 9,184 11,113 12,730 14,665 15,819 16,194 16,976

2002 2003 2004 2005 2006 2007 2008 2Q 2009

719 747 779 841 918 1,000 1,018 1,021

2002 2003 2004 2005 2006 2007 2008 2Q 2009

Source: Central Bank, Inteliace Research

Number of ATMs, 2002-1H2009

ESTONIA HAS THE MOST DEVELOPED PAYMENT INFRASTRUCTURE

AMONG BALTIC COUNTRIES

Number of POS terminals, 2002-1H2009

5.5

13.7

Estonia

Latvia

Lithuania

Estonia

Latvia

Lithuania

ATMs per capita, 1H2009 Per 1 thousand inhabitants

POS per capita, 1H2009 Per 1 thousand inhabitants

Euro Area (2008)

Euro Area (2008)

0.98

0.46

0.58

0.76

19.1

12.8

10.7

12.7

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ESTON

IA, LA

TVIA

, LITHU

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155 186 233 266 344 421 445 444

2002 2003 2004 2005 2006 2007 2008 2Q 2009

1,120 1,198 1,304 1,420 1,617 1,772 1,855 1,850

2002 2003 2004 2005 2006 2007 2008 2Q 2009

* subcategory included in above payment card statistics

Source: Central Bank, Inteliace Research

Number of payment cards, 2002-1H2009 Thousand

CARDS PENETRATION IN ESTONIA IS ALSO SIGNIFICANTLY HIGHER THAN

IN OTHER BALTIC COUNTRIES

Number of credit cards*, 2002-1H2009 Thousand

8.0

17.6

Estonia

Latvia

Lithuania

Payment cards per capita ratio, 1H2009

Euro area (2008)

1.47

1.30

1.11

1.38

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TABLE OF CONTENTS

General overview

Estonia

Latvia

Lithuania

Mid-term forecast

Notes on Methodology

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IA, LA

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Total TOP 10 = 27.5

FOREIGN INDUSTRY PLAYERS CONTROL 6 OUT OF 10 MAJOR BANKS IN

LATVIA

Source: Central bank, press, Inteliace Research

Assets, EUR billion Majority Shareholder (stake)

Top 10 commercial banks in Latvia, as of 1H 2009

Bank Market Share by Assets, %

Swedbank

Parex

SEB banka

Rietumu

Hipotēku

Aizkraukles

Krajbanka

UniCredit

13.5

12.4

10.9

8.5

4.8

4.7

4.6

3.7

2.5

23.0

Latvian Privatization Agency (70%)

Swedbank (100%)

SEB (100%)

Branch of Nordea Bank Finland

DnB Nord (99.8%)

Private individuals

Private individuals

State Treasury (100%)

UniCredit (100%)

AB Snoras Bank (77%)

88.7

DnB NORD

Nordea

7.1

4.2

3.8

3.4

2.6

1.5

1.5

1.4

1.1

0.8

24

Foreign bank branches

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

Inteliace Research

18

14

5

26

4

60

Number of banks Total Assets

BANKING MARKET IN LATVIA IS MODERATELY CONCENTRATED

Banks by assets size groups, 1H 2009 percent

Herfindahl-Hirschman** Index, 1H 2009 points, nonlinear scale

* Local banks and foreign banks branches ** Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Source: Central Bank, Inteliace Research

10 000 1 800 1 000

1157

high low medium

27 banks* 100%=

EUR 30.9 bn

Big >3bn EUR

Mid-size 1bn-3bn EUR

Small <1 bn EUR

Assets size

Share of top banks, 1H 2009, percent

Latvia Poland

88.7

68.4

48.9

TOP 10

TOP 5

TOP 3

64.2

45.5

33.6

25

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

21 23 22 22 24

30

35 31 30 31

47

39

45 39 36

1

2

2 9

9

2005 2006 2007 2008 2Q 2009

DEPOSITS IN LATVIA HAVE BEEN DECREASING SINCE 2007

Customer deposits evolution, 2005-1H2009 EUR billion, percent

100% = 8.8

11.0

14.2

4

CAGR* 2005-1H2009

Retail

Corporate**

13.8

Government***

13

15

12

Non-Residents (non-monetary)

97

GDP penetration in %

68 69 68 61

* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises Source: Central Bank, Inteliace Research

60

13.2

26

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF 53

51 49 49 49

35

40

41 39 39

11

9

9

11 11

1

1

0

1 1

2005 2006 2007 2008 2Q 2009

VALUE OF LOANS IS FALLING AFTER THE PERIOD OF EXPLOSIVE

GROWTH THROUGH 2008

Customer loans evolution, 2005-1H2009 EUR billion, percent

100% = 9.9

15.4

20.6

CAGR* 2005-1H2009

Retail

Corporate**

23.6

Government***

31

24

27

Non-Residents

17

GDP penetration in %

77 97 98 102

* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises Source: Central Bank, Inteliace Research

106

22.8

29

27

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

8,326 10,268 15,170

18,495 17,571 20,367

23,350 24,175

2002 2003 2004 2005 2006 2007 2008 2Q 2009

842 868 875 878 957 1,143 1,274 1,302

2002 2003 2004 2005 2006 2007 2008 2Q 2009

Source: Central Bank, ECB, Inteliace Research

Number of ATMs, 2002-1H2009

PAYMENT INFRASTRUCTURE IN LATVIA IS DEVELOPING FAST BUT A GAP

AGAINST OTHER COUNTRIES EXISTS

Number of POS terminals, 2002-1H2009

6.9

17.8

28

Estonia

Latvia

Lithuania

Estonia

Latvia

Lithuania

ATMs per capita, 1H2009 Per 1 thousand inhabitants

POS per capita, 1H2009 Per 1 thousand inhabitants

Euro Area (2008)

Euro Area (2008)

0.98

0.46

0.58

0.76

19.1

12.8

10.7

12.7

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

1,022 1,176 1,365

1,711 2,107

2,389 2,518 2,516

2002 2003 2004 2005 2006 2007 2008 2Q 2009

Source: Central Bank, Inteliace Research

Number of payment cards, 2002-1H2009 Thousand

SIMILARILY TO PAYMENT INFRASTRUCTURE, LATVIA HAS ALSO THE

LOWEST CARD PENETRATION RATIO AMONG BALTIC COUNTRIES

14.9

29

Estonia

Latvia

Lithuania

Payment cards per capita ratio, 1H2009

Euro area (2008)

1.47

1.30

1.11

1.38

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

TABLE OF CONTENTS

General overview

Estonia

Latvia

Lithuania

Mid-term forecast

Notes on Methodology

30

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

Foreign bank branches

Total TOP 10 = 24.6

SEB AND SWEDBANK CONTROL MORE THAN 50% OF BANKING ASSETS IN

LITHUANIA

Source: Central banks, press, Inteliace Research

Assets, EUR billion Majority Shareholder (stake)

Top commercial banks in Lithuania, as of 1H 2009

Bank Market Share by Assets, %

SEB Vilniaus

Swedbank

Snoras

DnB NORD

Ūkio

UniCredit

Šiaulių

Parex

29.0

22.1

14.7

9.4

6.8

6.5

2.4

1.8

1.3

Swedbank (100%)

SEB (100%)

DnB NORD A/S (100%)

Branch of Nordea Finland

Private individuals

Branch of Danske Bank

EBRD (16%)

Parex Bank Latvia (100%)

Branch of UniCredit

98.9

Nordea

Danske Bank

4.9 Private individuals

7.2

5.5

3.6

2.3

1.7

1.6

1.2

0.6

0.4

0.3

31

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

Inteliace Research

BANKING MARKET IN LITHUANIA IS SIGNIFICANTLY CONCENTRATED

Banks by assets size groups, 1H 2009 percent

Herfindahl-Hirschman** Index, 1H 2009 points, nonlinear scale

* Of which 8 locally registered banks + 7 branches of foreign banks . ** Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Source: Central Bank, Inteliace Research

10 000 1 800 1 000

1766

high low medium

15 banks* 100%=

EUR 24.9 bn

Big >3bn EUR

Mid-size 1bn-3bn EUR

Small <1 bn EUR

Assets size

Share of top banks, 1H 2009, percent

Lithuania Poland

8

7

4

27

3

66

Number of banks Total Assets

98.9

81.9

65.8

TOP 10

TOP 5

TOP 3

64.2

45.5

33.6

32

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF 30 27 27 25 24

53

56

58 64 63 7

7

7 5 7

10

9

8 6 6

2005 2006 2007 2008 2Q 2009

CUSTOMER DEPOSITS STAGNATE SINCE 2007

Customer deposits evolution, 2005-1H 2009 EUR billion, percent

100% = 7.8

9.5

11.6

11

CAGR* 2005-1H2009

Retail

Corporate**

11.2

Government*** 17

4

11

Non -Residents

-3

GDP penetration in %

37 40 41 35

* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises Source: Central Bank, Inteliace Research

38

11.3

33

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF 65

59 55

54 52

31

37

41

41 43

3

2

1

2 3

1

2

2

2 3

2005 2006 2007 2008 2Q 2009

LENDING VOLUMES ARE FALLING SINCE 2008. CORPORATE VOLUMES

SUFFER MOST

Customer loans evolution, 2005-1H2009 EUR billion, percent

100% = 8.9

12.3

17.6

CAGR* 2005-2009

Retail

Corporate**

21.1

Government***

39

19

26

Non- Residents

48

GDP penetration in %

43 51 62 65

16

* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises Source: Central Bank, Inteliace Research

67

20.0

34

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

10,340 11,037 13,556 18,351 20,787

30,408

42,986 42,805

2002 2003 2004 2005 2006 2007 2008 2Q 2009

889 994 1,012 1,053 1,146 1,332 1,489 1,537

2002 2003 2004 2005 2006 2007 2008 2Q 2009

Source: Central Bank, Inteliace Research

Number of ATMs, 2002-1H2009

PAYMENT INFRASTRUCTURE IN LITHUANIA IS IMPROVING QUICKLY BUT IT

IS STILL BEHIND ITS REGIONAL PEERS

Number of POS terminals, 2002-1H2009

8.8

24.4

35

Estonia

Latvia

Lithuania

Estonia

Latvia

Lithuania

ATMs per capita, 1H2009 Per 1 thousand inhabitants

POS per capita, 1H2009 Per 1 thousand inhabitants

Euro Area (2008)

Euro Area (2008)

0.98

0.46

0.58

0.76

19.1

12.8

10.7

12.7

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

2,148 2,538 2,618

3,090 3,463

3,880 4,282 4,356

2002 2003 2004 2005 2006 2007 2008 2Q 2009

Source: Central Bank, Inteliace Research

Number of payment cards, 2002-1H2009 Thousand

CARDS PENETRATION IN LITHUANIA IS SIGNIFICANTLY HIGHER THAN IN

LATVIA BUT STILL LOWER THAN IN ESTONIA

11.5

Payment cards/capita ratio, 1H 2009

36

Estonia

Latvia

Lithuania

Euro area (2008)

1.47

1.30

1.11

1.38

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

TABLE OF CONTENTS

General overview

Estonia

Latvia

Lithuania

Mid-term forecast

Note on Methodology

37

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

BANKING ASSETS IN ESTONIA ARE LIKELY TO STABILIZE THROUGH 2010

WHEN THE GROWTH IS EXPECTED TO RESUME

116 131 136 149 145

Banking assets in Estonia, 2006-2011F In EUR billion

Source: Inteliace Research

GDP penetration in %

• After a sharp fall of banking volumes in 2009, the total assets of banks in Estonia are expected to stagnate in 2010

• Volumes growth is expected to resume in 2011

GDP penetration in %

15.3

20.5 21.8 20.3 20.1 21.3

2006 2007 2008 2009F 2010F 2011F

CAGR 09-11 2%

38

147

x.x

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

BANKING ASSETS IN LATVIA ARE LIKELY TO STAGNATE WITHIN NEXT YEARS

142 148 143 152 147

Banking assets in Latvia, 2006-2011F In EUR billion

Source: Inteliace Research

GDP penetration in %

• Bank assets are expected to fall in the near future and then to stabilize on a lower level

• The extremely high Assets/GDP penetration is likely to fall

GDP penetration in %

22.6

31.2 33.1

29.7 28.5 29.3

2006 2007 2008 2009F 2010F 2011F

39

145

x.x

CAGR 09-11 -1%

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

BANKING ASSETS IN LITHUANIA MAY REBOUND IN 2011

71 82 81 90 88

Banking assets in Lithuania, 2006-2011F In EUR billion

Source: Inteliace Research

GDP penetration in %

• Bank assets are expected to stagnate in 2009 and 2010

• The GDP penetration will also stabilize

GDP penetration in %

17.1

23.4 26.0 24.2 24.2 25.9

2006 2007 2008 2009F 2010F 2011F

40

89

x.x

CAGR 09-11 +3%

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

Inteliace Research

FX rates:

• As a general rule all balances like: assets, deposits, loans and similar volumes have been converted from the local currency into Euro using end of year exchange rate

• Exchange rates used in the report:

Estimates and Forecasts:

• In some cases, recent or verified data was not available. Therefore, necessary short-term estimations have been done to fill the gaps. Estimates are always indicated with the letter “E”

• When preparing forecasts/estimates we have built models using latest observed trends, available forecasts of main economic indicators, seasonal changes observed in the past and other specific factors considered important.

Multiple sources:

• In some cases multiple sources of similar data exist. In this situation we always try to select the most appropriate one /in our view/. The source is indicated in the footer area of each slide. Nevertheless in specific cases, before interpreting the data it is recommended to get a good understanding on the methodology of data collection.

NOTE ON METHODOLOGY

EUR / FX 2002 2003 2004 2005 2006 2007 2008 1H2009

EEK 15.65 15.65 15.65 15.65 15.65 15.65 15.65 15.65

LVL 0.61 0.67 0.70 0.70 0.70 0.70 0.70 0.70

LTL 3.45 3.45 3.45 3.45 3.45 3.45 3.45 3.45

41

Inteliace Research

ESTON

IA, LA

TVIA

, LITHU

AN

IA - B

AN

KIN

G M

AR

KET IN

THE B

ALTIC

S 20

09

-20

11

, CEE B

AN

KIN

G B

RIEF

42

About this report This report has been prepared using publicly available sources including: financial reports, press publications, industry magazines, directories, financial databases and expert opinions. Views presented in this report reflect solely independent and unbiased opinion of Inteliace Research and the author. All due care has been taken in the production of this report, however Inteliace Research does not accept any responsibility or liability for any omissions or inaccuracies of the information contained in this publication. This report is copyrighted. Any distribution, storage, replication and usage is restricted. In case of any doubt please contact us at: [email protected]

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