Corrado Passera, Managing Director and CEO of Intesa Sanpaolo Group

WE KEEP INVESTING IN SERBIA

LENDING CANNOT BE CONSIDERED SEPARATELY AS IT IS CONNECTED WITH THE ECONOMIC GROWTH. LENDING CAN PLAY AN IMPORTANT ROLE IN GROWTH ACCELERATION BUT IT CANNOT CHANGE THE BASIC TRENDS. WE WANT TO PLAY A POSITIVE AND PROACTIVE ROLE IN THE ECONOMIES IN WHICH WE OPERATE. WE ARE DOING IT IN OUR HOME COUNTRY IN ITALY, WE ARE TRYING TO DO THAT IN SERBIA, WHERE WE ARE PROUD TO OPERATE THE LARGEST BANK IN YOUR COUNTRY. WE ARE DEDICATED TO THE SERBIAN MARKET AS A LONG-TERM INVESTOR WITH THE COMMITMENT NOT FAR FROM TWO BILLION EUROS. AND WE HOPE THAT SERBIA WILL BECOME THE EU MEMBER AS SOON AS POSSIBLE, WHICH WILL ADDITIONALLY CONTRIBUTE TO THE DEVELOPMENT OF THE COUNTRY. INTESA SANPAOLO GROUP IS SATISFIED WITH ITS ACQUISITIONS IN SERBIA AND THE PROOF FOR THAT IS READINESS FOR ADDITIONAL INVESTMENTS, CORRADO PASSERA, MANAGING DIRECTOR AND CEO OF INTESA SANPAOLO GROUP SAYS FOR BANKAR MAGAZINE. EMPHASISING THE ITALIAN GOVERNMENT ACTED WISELY DECIDING TO SUPPORT THE BANKS THAT NEEDED ADDITIONAL CAPITAL, PASSERA POINTS OUT THAT THE STATE SUBSIDY IS ALWAYS RECOGNISED AS A SIGN OF WEAKNESS. THAT IS WHY WE SAW THAT OFFER AS SOME KIND OF INSURANCE POLICY THAT WE DID NOT HAVE TO USE. INTESA SANPAOLO, IN HIS WORDS, IS PROBABLY THE ONLY BIG INTERNATIONAL BANKING GROUP THAT PASSED THROUGH THE CRISIS USING ITS OWN RESOURCES ONLY, WITHOUT THE NEED TO REQUEST ADDITIONAL CAPITAL FROM THE SHAREHOLDERS OR THE STATE. THE MANAGING DIRECTOR OF INTESA SANPAOLO GROUP WAS IN SERBIA RECENTLY AND TALKED TO PRESIDENT BORIS TADI, GOVERNOR OF THE NATIONAL BANK OF SERBIA RADOVAN JELAI AND DEPUTY PRIME MINISTER MLAAN DINKI, ON WHICH OCCASION HE GAVE AN EXCLUSIVE INTERVIEW FOR THE BANKAR MAGAZINE. Bankar: Has the crisis peaked? Corrado Passera: It probably has, but nobody knows what the future will be like. I believe that the worst is behind us, but what is ahead will depend on what we do. The growth we expect throughout the world, especially in Europe and US, is insufficient to make up for all that was lost in the previous period. That is why, in my opinion, we must engage all our efforts to foster sustainable growth. From the current point of view, growth in the following period, if any, will be moderate. Bankar: What should, in your opinion, be done to accelerate economic

growth? Corrado Passera: A number of issues have to be coordinated at international level but each country has its own priorities and has to handle growth in its own way. There are countries in which infrastructure development is key for increasing competitiveness, whereas, on the other hand, some countries have more problems with company competitiveness and where the key efforts have to be made to foster innovation, internationalization or financial strength. Therefore, each country is different, which is precisely why it is impossible to talk about general measures for economic growth acceleration. In any case, if in the next years the growth rate is below one percent, we shall be unable to compensate the losses we have accumulated both in terms of GDP and employment. Bankar: Many economists also say that the crisis was not as deep as the previous ones because this time the governments cooperated much more in order to overcome it. The governments previously faced crises mostly by weakening mutual relations and closing their economies. Apart from the individual strategies of various countries that you mentioned, could a joint intergovernmental strategy also be expected? C. Passera: There was certainly a very effective, coordinated response in terms of monetary management. Central banks acted in a coordinated and effective manner. That was very positive thing, something that was previously not the case. It is clear that the main countries in the world started working together on resolving a number of issues and the G20 activities are the very evidence of those efforts. Now the implementation of all those commitments and engagements taken by the G20 representatives needs to be ensured. Bankar: Do moderate growth forecasts also refer to the forecasts of operation of Intesa Sanpaolo Group? C. Passera: Lending is not an independent variable, it is closely linked with economic growth. Lending is very much related to corporate turnovers, exports, production and investments. When those indicators are dropping, credit growth cannot be expected. Lending can play an important role in growth acceleration but it cannot change the basic trends. We want to play a positive and proactive role in the economies in which we operate. We are doing it in our home country in Italy, we are trying to do that in Serbia, where we are proud to operate the largest bank in your country. Serbia is a country in which we did not suspend our lending activities even during the most difficult phase of the crisis. It is a country in which Intesa Sanpaolo is a long-term investor with the commitment not far from two billion Euros. We would like to be as close as possible to all investment opportunities that will foster growth in your country. Bankar: In the first two quarters of this year the Group recorded declining

profits. Do you expect this trend to continue? C. Passera: Our performance was in line with what we had previously projected. Profit was expected to decrease in view of the market situation. We should not forget that the decrease of the market interest rates was so wide, that the impact on retail banks income was very significant. One of the lessons of the crisis is that sustainable profitability requires a medium-term approach to management and the optimization of other important levers liquidity, solidity, risk profile, leverage. We have always been trying to optimize all these management variables, not only maintain short -term profitability. Our key strategic choice which has proven to be wise - is the creation and the consolidation of long-term relations with our clients, not just contingent relationships as the originate to distribute model is based on. Lending activities were not suspended in any of the countries also because we had previously a accumulated sufficient liquidity reserves. We are proud of how the Group is managing through the crisis. Bankar: In the previous period the banks were fairly aggressive in fighting for their market share, in particular in the new Eastern European markets. There are those who believe the bankers acquired their market shares at the expense of risk management. Do you think that the banks will be more cautious in the future when winning new clients? Corrado Passera: I would not like to speak on behalf of other banks. Creditworthiness has always remained our basic rule and always will be. Regulators and Supervisory Authorities play a key role in this respect. For example, in Serbia the regulatory and supervisory bodies worked very wisely in that respect, very prudent also in setting constrains to the development of the lending activities that might have created problems. Bankar: Do you think that the banks took too much risk with their significant exposures to the Eastern European markets? Corrado Passera: We passed through a period when CEE operations were considered as very risky. We never shared that view with few exceptions. In general, we are ready to increase our presence in this part of the world, we want to keep investing in their economies and the Division that operates our international subsidiaries is planned to account for an even larger share of our overall business result. Bankar: Do you believe that the West Balkans are perceived as riskier than they actually are? Corrado Passera: If we observe the entire region, the answer would be negative, but each country should be observed separately. It is obvious that we did not wish to invest in some countries, whereas there are other countries, such as Serbia, in which

we even wish to increase our presence. Therefore, there is a number of solid, wellmanaged countries, as is the case with Serbia. Good country management implies a combination of stability of the financial sector and long-term economic growth strategies and policies to increase the countrys competitiveness. Welfare and other social cohesion policies are also crucial to guarantee a long-term sustainable growth. Bankar: Are you satisfied with your acquisition in Serbia? Corrado Passera: We are very satisfied. We expected the bank to grow, but not to the extent that was recorded in the past four years. We want to keep growing. This country has a strong potential to growth also thanks to its strategic geopolitical position. We hope that Serbia will become a member of the European Union as soon as possible, which will additionally contribute to the countrys development. Bankar: What do you perceive as the main macroeconomic problems of Serbia? Corrado Passera: The external debt is clearly a potential problem, but I have been assured that serious efforts are being invested in coping with this issue. It is a weakness that should be overcome by exports growth, on the one side, and reduction of the factors that have led to borrowing growth, on the other. This is, therefore, a difficult task, but my impression is that the Government is tackling it very seriously. Bankar: Intesa Sanpaolo refused an offer of the Italian government to raise funds by issuing bonds that would be bought by the government. Corrado Passera: I believe that the word refused is not the best way to say it. The Italian Government acted wisely when it announced its willingness to support the banks that need additional capital. This was a very important decision, because the option allowing Italian banks to use government aid greatly helped us to weather the crisis. When the deadline came for us to decide whether or not to use the insurance policy provided by the Government, our results showed that we could continue to operate and grow even without those funds. I believe it was good news for all our shareholders and stakeholders that we were in a position to be able to walk on our own legs. Bankar: The shareholders seemed disinclined from the very beginning to see the government funds enter the bank? Corrado Passera: Government aid is obviously perceived as an evidence of weakness. For that reason we decided to consider the governments offer but only as an insurance policy: should the market had collapsed, we were ready to use it. Fortunately, we proved to be able to proceed without government aid. Intesa Sanpaolo is probably the only big international banking group that weathered the crisis on the basis of its own resources, without asking for additional equity from the shareholders or from the government.

Bankar: Do you believe that because of that you are in a better position than other banks? Corrado Passera: I do not believe that the government is a bad shareholder per se. But, again, it is good that we have weathered the crisis without state aid. Bankar: Are you ready to fund your Serbian subsidiary should such need arise? Corrado Passera: Yes. We have constantly financed the growth of our Serbian bank in different ways, either through capital increases or credit lines. We have also not withdrawn dividends from Serbia so far, reinvesting all profit instead. In such a way, I believe we have confirmed in practice our commitment to developing Banca Intesa Beograd. Banker: Do you see any opportunities for new acquisitions in Serbia? Corrado Passera: For the moment there is nothing on the table, but we are ready to consider any good opportunity should it arise. Our current plans are based on organic growth rather than growth through new acquisitions. But never say never We have constantly financed the growth of our Serbian bank in different ways, either through capital increases or credit lines. We have also not withdrawn dividends from Serbia so far, reinvesting all profit instead. In such a way, I believe we have confirmed in practice our commitment to developing Banca Intesa Beograd.We are not planning new acquisitions in Serbia in this moment, yet never says never again... If in the next years the growth rate is below one percent, we shall be unable to compensate the losses we have accumulated both in terms of GDP and employment BANKAR, November 3, page 12, Vojislav Stevanovi