Bank Capitalization 2013 Russian Bank Capitalization Fund Galina

Bank Capitalization 2013 Russian Bank Capitalization Fund Galina Klimenko Principal Investment Officer Europe & Central Asia Moscow July 9, 2013

Russian Banking Sector • The sector is highly concentrated: five government controlled banking groups hold 60% of assets, foreign banks hold 18%, and large private banking groups hold the majority of the remainder. • Competitive landscape: many Russian mid-cap banks are all pursuing similar strategies with few operational or niche market advantages. • Funding is becoming tighter: deposits are slowing, government resources are ultimately limited, and long-term financing remains unavailable on the market. Many capital market instruments (e. g. securitization, etc) are limited in use by the current legislation. • Capital requirements are increasing: CBR is emphasizing strengthening banks’ capitalization, including increased risk weights for certain retail loans, increased RR for certain project finance loans, and Basel III-like capital rules. 2

AMC is a capital mobilization vehicle of IFC: ‘crowding in’ investment to emerging markets Investment Services Advisory Services • Loans and intermediary services • Access to finance • Equity and quasi-equity • Corporate advice • Syndications • Environmental and social sustainability • Structured and securitized products • Risk management products • Trade finance • Subnational finance • Treasury operations • Infrastructure Advice • Investment Climate Asset Management Invests third-party capital in a private equity format Allows outside investors benefit from IFC’s expertise at achieving strong equity returns as well as development impact Helps IFC fulfill its role and leverage its balance sheet by mobilizing thirdparty funds to increase investment

What is the Russian Bank Capitalization Fund? Why? Who? What? When? How? § Russian banking sector is promising, but with huge capital needs § Financial sector critical to development of economy § Bring new investors to Russian banking sector and set examples § Private equity fund managed by IFC Asset Management Co § Investors IFC, Ministry of Finance of RF, and VEB § Investments in bank equity; sub-debt possible but Basel III makes this instrument uncertain § Target investment sizes US$20 -$100 million § Shares of 10%-30% (with some exceptions) § RBCF investing to profit – need to exit § Fund established June 2012; second closing June 2013 § 2 investments made (Credit Bank of Moscow, Orient Express Bank), considering further investments now § 2 -4 investments per year, maximum ~10 § IFC Moscow is primary point of contact § Prepare information in advance § Present IFRS financials and investment presentation

RBCF Legal Structure • Limited partnership managed by IFC Asset Management • Russian Federation &VEB investments through an IFC-managed trust fund • Investors: IFC, IFC Trusts 1 & 2 • No RF & VEB involvement in management of Fund or investment decisions LP 2 IFC manage d 100% owned IFC TRUST FUND Manager: IFC Asset Management Company, LLC. LP 3 5 IFC Russia Bank Capitalization Fund GP interest LP interest Equity GP

The Russian banking market is highly fragmented Fragmented market: ~1000 banks, led by a few State banks 27% Top 5 banks (all state) account for over half of all banking assets 12% 6% 51% Lower cost efficiency in smaller banks of RBCF's target segment % (1 H 2010) Cost 1 / income ratio 80% 4% 60% 3% 10% Banks 11– 20 Banks 21– 50 Banks 51– 100 Banks 101– 200 Banks 201– 500 Banks 501 -~1000 All banks 40% 7% Banks 6– 10 RBCF's target segment accounts for a quarter of all banking assets 20% 12% 25% 74% 52% 53% Banks 120 Banks 2150 Banks 51 -100 $2 -6 Bn $2 Bn-$800 M 0 8% 5% 5% Asset size $6 Bn+ Growth / consolidation will 100% help achieve minimum Total assets (%) efficient scale and market Opportunity for value creation through power 1% consolidation and improved efficiency

Criteria for Bank Selection – Target Banks IFC Standards § All IFC performance standards, financial reporting, financial covenants and others are unchanged § IFC is a demanding investor and will look for partners with track record, excellent reputations and good corporate governance Investment Thesis § IFC is investing its own funds and those of investors § Value proposition (expected returns to investors) are critical § How are investors (including IFC) going to profit from the investment? Real Role in Economy The Numbers § Meaningful role in economy (% of regional market, role in providing necessary financial services to SMEs, households, corporations) § Innovative services and products welcome § Size: Primarily top 250 banks by assets, with regional presence § Investment size: $20 -100 mln, for stakes of 10% -30% (exceptions possible) § Co-investors: RBCF goal is to help attract additional foreign investment – hence structures with more investors get priority § IFC may co-invest and provide debt, risk management and other products

Simplified Investment Criteria Transparenc y Investment Operations Basic approach § IFRS financial statements by a high-quality auditor § Clear ownership, reputation of owners and institution critical § Quality of management § Problems: high related party, linked loans, unclear strategy § Clear answers to why invest? (ROE, NIM, COI, etc) § Profitability, stability, capital, growth, potential returns § Clear path to sale/exit in 5 -10 years § What will market position be during investment period? § Meaningful role in regions § Both traditional and innovative banking products (non-speculative) § Strong risk management § Size: Primarily top 250 banks by assets, with regional presence § Investment size: $20 -100 mln, for stakes of 10% -30% (in most cases, some exceptions) § Largest banks / foreign / government mostly excluded § Smallest banks: more likely through acquisitions

Robust Sourcing Methodology Russian Banks Identify eligible banks • Screening for key financial indicators (e. g. , minimum scale) • Excluding reputational issues • Screening for private sector (or to be privatized) ~ 1000 banks Identify commercially viable candidates Eligible Banks ~ 300 banks • Locally owned • Privately owned • Good reputation • Non captive • Excluding “pocket banks”, “treasury banks” or “ captive banks” • Excluding subsidiaries of international banks • Excluding banks not having basic minimum financials (IFRS requirement) Target Pool Identify top target banks for focused business development efforts • Specific opportunities have been identified or are likely, based on IFC’s relationship (excluding recently exited investments), ranking by capital needs, likelihood of transaction, size, and systemic importance (in particular network banks) ~ 100 potential targets • Meeting minimum financial requirements Near-term Pipeline 10 target banks in 10 -24 months • $650 M • Follow-on investments anticipated IFC already in contact with many banks on regular basis • Six banks: equity investment • 26 investee companies + High demand from non-client banks

RBCF able to identify opportunities and add value Key issues of Russian market High growth opportunities Attractive valuations Mid-sized banks lack funding and scale Banking market set to out-pace GDP as penetration catches up with Western levels Market valuations currently a fraction of pre-crisis levels Structural underfunding of economy and banking sector, concentration of large state banks Many banks lack due to scale, credit, and transparency concerns High NPLs with low standards of professionalism Need to introduce basic banking standards (e. g. , proper risk management, principles of ALM) Over-due loan levels in RBOF's target segment appear to have peaked, but are under-reported Market Fragmentation with opportunity to increase efficiency >1000 banks in total, led by a few state banks. with ~60% of banks either captive or subscale Opportunity for value creation through consolidation How RBCF creates value Bank selectio Operating phase n Target selection 1 Target 2 Reputation selection • Identifying banks with highest upside potential • Selecting best banks with basic risk mgmt • Strong deal flow based on IFC client base • IFC “stamp of approval” and involvement • Enforcing international standards of Corporate Governance Funding Equity funding combined with range of IFC debt instruments and increased market access 3 Improving bank fundamentals • Supporting active risk management and NPL recovery • Ensuring basic banking capabilities 4 Efficiency and profitable growth • Sustained growth improving efficiency, profits and M&A opportunities Structure d exit 5 Sale preparation, execution • Structured exit preparation • Attracting potential acquirers • Opening investment opportunities foreign investors

Target banks will be in a position to benefit from the Fund’s resources at a crucial time. Key Benefits for Investee Banks Credible Investors Counter-Cyclical Strategy Experienced Team Advisory Services § Investees continue to receive the same level of services and benefits as if they were transacting directly with IFC, with added oversight from AMC staff § During times of financial crisis, foreign investments in emerging markets diminish further as portfolio investments decline rapidly § Fund will act to stabilize banks in order to speed up economic recovery and increase lending to productive sectors of local economies § By directly providing emerging market banks with much needed capital, as well as catalyzing additional capital for those banks in a time of severe crisis, the Fund will: § Support economic growth in Russian economies through financial intermediation § Be well positioned to capture upside via countercyclical investment § Senior AMC and IFC investment professionals with extensive experience originating, executing and supervising investments in Russian commercial banks § Investment teams have the full support of IFC’s entire investment infrastructure, including dedicated portfolio, risk, corporate governance and equity sales departments § Benefit from advisory services to portfolio banks § Strengthening private sector development and improving banks’ economic and financial performance, and their social and environmental sustainability

AMC leverages IFC’s proven origination, execution and supervision resources while conducting rigorous independent investment evaluation approved by independent Investment Committees. Rigorous Investment Process Origination Evaluation Execution Supervision Exit • IFC infrastructure, • Deep and broad analysis of local markets, regulatory regimes and sector fundamentals • Negotiation leverage due to limited competition and institutional credibility • Dedicated, locally based portfolio supervision teams in frequent contact with clients • Frequent use of structural exit mechanisms • Locally-based business developers supported by AMC and IFC Management • Due diligence conducted by industry experts and appropriately staffed teams of investment professionals • Flexibility to offer tailored investment products across the full capital structure • Strict social and environmental compliance requirements • Multiple scenarios: - Sale to strategic - IPO - Put to sponsor • Unique access to challenging markets facilitates deal flow • Deep knowledge of local legal environment drives efficient deal structuring • Unique relationship with and access to local regulators • Experience in less developed capital markets network and name leads to steady pipeline of potential deals Largest emerging market deal flow Deep industry/ regional knowledge Capability to develop innovative structures Dedicated teams with relevant experience Defined strategies

AMC enhances the time tested IFC investment process that has evolved over the past 50+ years. Proven Strategy Deal Sourcing IFC’s unmatched access to emerging market investment opportunities • AMC Funds enhance the IFC product offering by enabling additional/larger deals Fund Management Investment Selection • Experienced operations staff with long private equity experience at leading fund managers • Thorough review of all eligible IFC investment proposals • Use of first class third party firms for audit and ancillary back-office functions Alignment with fund objectives Independent decision-making • Clear exit strategies Value-Add • Experienced professionals with extensive principal investment experience • Tax and legal structuring with Fund specific focus • Review and mitigation of conflicts of interest