Moody’s Perspective on Current Market Conditions in the CIS Presented by: Daniel Mumzhiu,...

Moody’s Perspective on Current Market Conditions in the CIS

Presented by:

Daniel Mumzhiu,Assistant Vice President

Structured Finance Group

Presented by:

Daniel Mumzhiu,Assistant Vice President

Structured Finance Group

September 29, 2008

2

Agenda

Deal Performance Update

Trends and Outlook for Asset Quality

Has Moody’s View of the Region Changed?

Increased Transparency of Moody’s

3

Deal Performance Update

4

Recent Transactions and Pipeline

2008 closed (publicly rated) transactions

– 4 Russian transactions totalling RUB33 billion

• 2 RMBS

• 2 Factoring receivables deals

– 1 Ukrainian auto-loan transaction for $110 million

Pipeline

– Deals from 4 CIS countries (mostly Russia)

• Assets include, mortgages, consumer loans, future flow,

factoring receivables, SME loans, lease receivables, auto

loans; deals include CDOs and CLOs

5

CIS RMBS Deal Performance 11 RMBS transactions rated by Moody’s in CIS

– 7 of 11 show 60+ delinquency of less than .50%

0

0.5

1

1.5

2

2.5

3

Delinquency 6

0+ [%

of C

B]

CityMortgage MBS Finance B.V. CJSC First Mortgage Agent of AHML

CJSC Second Mortgage Agent of AHML Gazprombank Mortgage Backed Securities Series 2006-1

Gazprombank Mortgage Backed Securities Series 2007-1 Kazakh Mortgage-Backed Securities 2007-1 B.V.

Moscow Stars B.V. Red & Black Prime Russia MBS No. 1 Limited

Russian Mortgage Backed Securities 2006-1 S.A. Specialised Mortgage Agent GPB - Mortgage

Ukraine Mortgage Loan Finance No. 1 Plc

6

CIS RMBS Deal Performance Defaults are low and within expectations

– Lack of uniform definition for defaults an issue

0

0.5

1

1.5

2

2.5

3

3.5

4

Cum

ula

tive D

efa

ults [%

of O

B]

CityMortgage MBS Finance B.V. CJSC First Mortgage Agent of AHML

CJSC Second Mortgage Agent of AHML Kazakh Mortgage-Backed Securities 2007-1 B.V.



7

CIS RMBS Deal Performance CPRs range from 10-30% with 20% average

– High CPRs explained by borrower behaviour

0

10

20

30

40

50

60

2006

.08

2006

.09

2006

.10

2006

.11

2006

.12

2007

.01

2007

.02

2007

.03

2007

.04

2007

.05

2007

.06

2007

.07

2007

.08

2007

.09

2007

.10

2007

.11

2007

.12

2008

.01

2008

.02

2008

.03

2008

.04

2008

.05

2008

.06

CPR

[%]

CityMortgage MBS Finance B.V. Gazprombank MBS Series 2006-1

Gazprombank MBS Series 2007-1 Kazakh Mortgage-Backed Securities 2007-1 B.V.

Moscow Stars B.V. Red & Black Prime Russia MBS No. 1 Limited



8

CIS Auto-Loan Deal Performance Delinquencies have been low

Defaults do not exceed 4.5% for any transaction

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2005

.08

2005

.10

2005

.12

2006

.02

2006

.04

2006

.06

2006

.08

2006

.10

2006

.12

2007

.02

2007

.04

2007

.06

2007

.08

2007

.10

2007

.12

2008

.02

2008

.04

2008

.0660

+ D

elin

quen

ces

as %

of CB

ROOF RUSSIA S.A. Russian Auto Loans Finance B.V.

Russian Car Loans No. 1 S.A. Taganka Car Loan Finance PLC

9

Performance of CIS Credit Derivatives

Emerging market CDOs have stable outlooks.

Sputnik CDO I - First rated Synthetic CDO of CIS names have been upgraded in Aug 07.

First CIS CLO -TransAlp 2 Securities Plc – all rated notes were fully and timely redeemed.

For now, it is uncertain when the current challenging market conditions will subside, but what is clear is that credit derivatives will remain a valuable funding tool for Russian banks in the intermediate to long term.

10

Trends and Outlook for Asset Quality

11

Moody’s Outlook for Russia

Economic indicators:

– GDP expected to maintain healthy growth in ‘08 of 7.7%

– Household spending to continue to increase

• Increasing inflation may impact consumers

– Stable sovereign outlook (recently upgraded to Baa1)

Banking Sector Outlook:

– Changed to Negative from Stable on Sept. 25th due to structural

weakness (the outlook reflects expected conditions, not a projection

of ratings changes)

• Moody’s moved 12 banks from positive to stable outlook last week

12


Inflation year-over-year percentage change

0

2

4

6

8

10

12

14

16

18

20

2002

.01

2002

.05

2002

.09

2003

.01

2003

.05

2003

.09

2004

.01

2004

.05

2004

.09

2005

.01

2005

.05

2005

.09

2006

.01

2006

.05

2006

.09

2007

.01

2007

.05

2007

.09

2008

.01

2008

.05

y-o

-y,

%

13


Unemployment Rate/ Employment Growth

0

1

2

3

4

5

6

7

8

9

10

11

2000 2001 2002 2003 2004 2005 2006 2007 2008

Un

emp

loym

ent

Rat

e, %

-2

-1

0

1

2

3

4

5

Em

plo

ymen

t G

row

th,

%

Unemployment Rate (LHS) Employment Growth (RHS)

14

Moody’s Outlook for Russia: Consumer Loans

Factors affecting asset performance

– Regional expansion and more aggressive underwriting in

recent years may impact collateral performance

• Some banks have curtailed underwriting standards

– Increasing use of credit bureaus mitigates some risk

– Some ABS originators have negative outlook

Current outlook is “Stable/Negative” (no change from

previous)

15

Moody’s Outlook for Russia: Consumer Loans

Rating Implications:

– Performance expected to remain within current

assumptions

– Still observing high levels of excess spread

– Some deals may be impacted by economic downturn or

severe crisis as many transaction ratings are linked to

originator rating in some respects

16

Moody’s Outlook for Russia: RMBS

Factors affecting asset performance

– Reduced mortgage lending may lower home price growth

– Origination standards remain high due to AHML criteria

• Many lenders have tightened lending standards (avoiding

example of US sub-prime crisis)

Current outlook is stable (no previous outlook)

17

Moody’s Outlook for Russia: RMBS

Rating Implications:

– Performance expected to remain within current

assumptions

– Event risk remains as some transaction ratings are linked

to originator ratings

• Most RMBS deal originators to date have generally high

ratings

18

Moody’s Outlook for Russia Housing Loan Growth

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2004

.06

2004

.09

2004

.12

2005

.03

2005

.06

2005

.09

2005

.12

2006

.03

2006

.06

2006

.09

2006

.12

2007

.03

2007

.06

2007

.09

2007

.12

2008

.03

2008

.06

RU

R M

illi

on

s

Rouble Housing Loans, Mortgage Foreign Curreny Housing Loan, Mortgage

Rouble Housing Loans, Non-Mortgage Foreign Currency Loan, Non-Mortgage

19

Moody’s Outlook for Russia House Price Index for Moscow/Moscow Region

100

200

300

400

500

600

700

800

900

1000

2000

.03

2000

.12

2001

.09

2002

.06

2003

.03

2003

.12

2004

.09

2005

.06

2006

.03

2006

.12

2007

.09

2008

.06

Ind

ex (

Bas

e =

100

)

Moscow Moscow region

20

Moody’s Outlook for Russia House Price Index for Select Russian Regions

100

200

300

400

500

600

700

800

900

1,000

1,100

2001

.03

2001

.09

2002

.03

2002

.09

2003

.03

2003

.09

2004

.03

2004

.09

2005

.03

2005

.09

2006

.03

2006

.09

2007

.03

2007

.09

2008

.03

Ind

ex

(B

as

e =

10

0)

Khanty-Mansi Autonomous Area Krasnoyarsk Territory

Novosibirsk Region Sverdlovsk Region

Tyumen Region

21

Has Moody’s View of the Region Changed?

22

Moody’s View of CIS Securitisation

Has Moody’s view of securitisation in the CIS changed

given the crisis and current market conditions?

– Largely, NO

Crisis has highlighted extreme volatility in Russia

Credit estimates for unrated originator may no longer

be sufficient

Greater focus on origination standards

Increased analysis of counterparty risk in transactions

23

Increased Transparency of Rating Agencies

24

Key Moody’s Efforts to Improve Transparency Providing added info on SF ratings (V-Scores, loss sensitivity

analysis)

Formal review of loan originators

Efforts to discourage “ratings shopping”

Working towards improved issuer info. quality

Increasing surveillance function and resources

Regular comprehensive review of models

Bolstering measures to manage potential conflicts of interest

A number of other initiatives…

25

Disclosed Assumption for Russian RMBS

House price stress rates (in a recession)

– 65% for Moscow/St. Petersburg

– 53% – 65% for Russian regions

Foreclosure costs of 10% of property value with minimum

fixed cost of RUB 29,000

Time to foreclosure

– 3 years in Moscow/St. Petersburg

– 4 years in Russian regions

Accrued interest over foreclosure period: 12%

26


Minimum CE for Russian RMBS deals is 5%

Property type credit enhancement adjustments:

– Flat or single family home: no adjustment

– Communal apartment: 100% penalty

Occupancy type adjustments:

– Owner occupied: no adjustment

– Non-owner occupied: 100%; vacation homes: 85%

Renovation loan purpose penalty of 5%

27


Loans in USD or EUR are penalized up to 12%

Self-employed borrower penalty is 25%

Self-certified penalty depends on LTV of the loan

Benefit provided to seasoned loans depending on age

28

Disclosed Assumptions for Russian RMBS Frequency of Default (based on LTV) Curve

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

20% 30% 40% 50% 60% 70% 80% 90% 100%

LTV (%) (Loan-to-Value)

De

fau

lt p

rob

ab

ilit

y (

%)

29


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