This document summarizes a forum on Ukrainian SMEs held in Lviv, Ukraine in October 2009. It notes that SMEs make up 10-15% of Ukraine's GDP, compared to 30-40% in other CEE countries. The downturn has negatively impacted Ukrainian and CEE SMEs, forcing some into the shadow economy, while others are restructuring. Banks in Ukraine have tightened lending due to losses, adopting a more risk-averse approach. To receive financing, Ukrainian SMEs must improve transparency, management, and financial structures. The document advocates adopting European standards and attracting foreign investment to allow businesses to grow beyond small pockets. Erste Bank was highlighted as continuing to support SMEs

1. Ukrainian SMEs: choice between
shadow and strength of the economy
Lviv Economic Forum
October 2 2009.
O t b 2, 2009

2. SMEs are a core for many CEE economies
… but Ukraine
SMEs make around 10-15 % GDP of Ukraine at the same time
10 15
they have stronger position with 30-40% GDP in CEE
On average 99,7 of 100 companies operating in each of the
European Union’s 27 countries are SMEs
SMEs and Micros generate more than two-thirds of all jobs in
European Union 27
Ukraine is moving forward to the European standards and
development of SMEs is crucial for the economy
If the company wants to grow from a pocket business to a
BUSINESS it needs to develop and attract European investments
06/10/2009 - Page 2

3. Equation for SME success
Stable and efficient State support
Profit making and
financing
transparent business
06/10/2009 - Page 3

4. Downturn changed the economies and
conditions for SMEs
– CEE experienced the worst economic d
i d h i downturn, ddespite that, region
i h i
will have higher growth rates then rest of the Europe
– CEE governments supported SMEs, at the same time Ukrainian
SME is left for its own survival
– Banks changed the conditions for SMEs: limited or stopped loan
activities SMEs lack turnover capital and have limited ability
p y
for refinancing
SMEs were deeply harmed by the downturn, but those remaining
downturn but, those,
their business in the legal frames and proper business management
are still attractive for financing and investments
06/10/2009 - Page 4

5. Banks
B k are hit b the crises
by th i
– Since September 2008 banks have lost 28% of total hryvnia deposits, and
14% of total f i currency d
f l foreign deposits
i
– Refinancing from NBU stands at around UAH 85bn, which is 20% of total
local currency banking system assets. Banks are completely reliant on NBU
for l
f long-term hryvnia f d
t h i funds
– Banks are faces with worsening loan portfolios, which results in stricter risk
management
Bank's net income, UAH mn
6620 7304
4144
2170
685 827 1263
2002 2003 2004 2005 2006 2007 2008 8M 2009
-20 503
Source: NBU
06/10/2009 - Page 5

6. Borrower market has changed to lender
market
k
– Reconciliation of credit conditions
deformed by bullish market
experienced till beginning of crisis
– Banks will tighten risk policy and
will not discuss conditions
– Capital has become the most
important but expensive product
for the banks
– The higher risk the higher capital
consumption
p
Banks will be very selective in
lending
l di
06/10/2009 - Page 6

7. SMEs are faced with the new challenges in
the downturn
SMEs just started building up
and strengthen in 2003-2007
Crises forced SMEs to choose
between
b t
1. death
2. shadow economy
3. business restructuring
Only restructuring and building up transparent business will enable
Ukrainian SMEs to increase it’s role in the economy
it s
06/10/2009 - Page 7

8. SMEs have negative expectations… but positive results
can b achieved if crises challenges properly met
be hi d i h ll l t
strong negative no influence strong positive %
influence 0 influence
-5 -4 -3 -2 -1 1 2 3 4 5
5 2
UA 86 20 14 23 19 10
82 12 11 28 20 11 3
HU 8
CZ 77 5 6 20 26 20 18 6
HR 74 14 6 19 18 17 15 8
SK 74 6 4 19 24 21 19 5
RS 70 12 6 21 15 16 19 8
Percentage of companies which
RO 63 7 4 10 20 22 16 15 expect negative, none or positive
effects of the economic crisis on their
AT company in 2009
61 34 12 21 21 33 6 Source: IMAS research, July 2009
06/10/2009 - Page 8

9. Ukrainian SMEs have less access to loans
%
2008 2009
100
89
90 84
80 77 76 75
72 71 71
70 65
62 61 62
58 56 56
60
50
50
40
30
20
10
0
RO AT HR SK RS UA HU CZ
Percentage of companies who use any kind of loan in any of the banks
Source: IMAS research, July 2009
06/10/2009 - Page 9

10. Ukrainian SME
Uk i i SMEs use l
less deposits
d it
%
2008 2009
100
90 84
80
80 73
70
70 63
60 56 55 53 53
50
50 47
44
40
40 34
30
30 27
20
10
0
SK CZ AT RO HU HR RS UA
Percentage of companies who own any kind of deposit in any of the banks
Source: IMAS research, July 2009
06/10/2009 - Page 10

11. Finacial instruments used by CEE SMEs
– Domestic and foreign payments are
naturally the most widespread product used
by SMEs (EU-15 169 bn tx. per capita);
except from Ukraine (7,8 bn. tx. per
capita). However, Ukraine bears the
highest potential for total transactions
and is growing at double-digit rates.
– Usage of deposits generally increased, with
the exception of Ukraine, Croatia and
Hungary
– Usage of loans slowed down in most of the
countries,
countries except from Slovakia and Czech
Republic
– Loans seem to be the most interesting
product for the SMEs in the near future in
all countries
ll ti
Source: IMAS research, July 2009
06/10/2009 - Page 11

12. SMEs should use downturn to bring up their
standards
You can never enter one river twice…
CONDITIONS THAT
WORKED ONES…
– Shadow accounting
– Improper management
– High risk projects … HAVE CHANGED,
– Poor equity AND SME HAS TO CHANGE
–Strong management
(financial, information)
– Ability to adopt to changes
y p g
– Well balanced financial
structure
–Adequate share of own
capital
– Strong risks management
06/10/2009 - Page 12

13. Healthy and transparent business will get
financing in the future
Start with small and grow
S ih ll d
– Get to know the bank and open
yourself to the bank
– Consult and change your business
– Become transparent and efficient
Build partnership relations and get
financing to develop
06/10/2009 - Page 13

14. Even in difficult times Erste Bank proves its
commitment to SMEs across CEE regions
– In
I 5/2009 l launched a program of EIB and E t G
h d f d Erste Group to provide fi
t id financing
i
of in total EUR 440 million from EIB to SMEs in CEE via four subsidiaries of
Erste Group: Ceska sporitelna, Erste Bank Oesterreich, Erste Bank
Hungary and Immorent.
– In 7/2009 concluded agreement with EBRD and Erste Bank Hungary to
provide lending to SME via Erste Bank Hungary in total amount of €100
million.
– In
I 6/2009 C k sporitelna i t d
Ceska it l introduced advantageous program „TOP
d d t TOP
company II“ aimed for SME in total amount CZK 1 billion (ca. EUR 40
million).
– Slovenska sporitelna has a co-operation with Slovak Guarantee Bank (state
co operation
owned) which provides bank guarantees covering up to 50% of SMEs bank
exposure (max EUR 350 000 per client).
– In 4/2009 BCR, the Romanian Ministry for SMEs and Commerce and
Business E i
B i Environment signed a collaboration protocol t support R
t i d ll b ti t l to t Romania’s
i ’
SMEs.
06/10/2009 - Page 14

15. Pavel Cetkovsky
Deputy CEO
Erste Bank
E-mail: Pavel.Cetkovsky@erstebank.ua
Tel.: 8044 585 9275
06/10/2009 - Page 15