Download Moody`s Outlook for Russia

Moody’s Perspective on Current
Market Conditions in the CIS
Presented by:
Daniel Mumzhiu,
Assistant Vice President
Structured Finance Group
September 29, 2008
Agenda

Deal Performance Update

Trends and Outlook for Asset Quality

Has Moody’s View of the Region Changed?

Increased Transparency of Moody’s
2
Deal Performance
Update
3
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
4
CIS RMBS Deal Performance

11 RMBS transactions rated by Moody’s in CIS
– 7 of 11 show 60+ delinquency of less than .50%
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
2.5
2
1.5
1
0.5
0
20
06
20 .08
06
20 .09
06
20 .10
06
20 .11
06
20 .12
07
20 .01
07
20 .02
07
20 .03
07
20 .04
07
20 .05
07
20 .06
07
20 .07
07
20 .08
07
20 .09
07
20 .10
07
20 .11
07
20 .12
08
20 .01
08
20 .02
08
20 .03
08
20 .04
08
20 .05
08
.0
6
Delinquency 60+ [% of CB]
3
5
CIS RMBS Deal Performance
Defaults are low and within expectations

– Lack of uniform definition for defaults an issue
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.
Russian Mortgage Backed Securities 2006-1 S.A.
Specialised Mortgage Agent GPB - Mortgage
Ukraine Mortgage Loan Finance No. 1 Plc
3.5
3
2.5
2
1.5
1
0.5
.0
6
08
.0
5
20
08
.0
4
20
08
.0
3
20
08
.0
2
20
08
.0
1
20
08
.1
2
20
07
.1
1
20
07
.1
0
20
07
.0
9
20
07
.0
8
20
07
.0
7
20
07
.0
6
20
07
.0
5
20
07
.0
4
20
07
.0
3
20
07
20
07
.0
2
0
20
Cumulative Defaults [% of OB]
4
6
CIS RMBS Deal Performance

CPRs range from 10-30% with 20% average
– High CPRs explained by borrower behaviour
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
Russian Mortgage Backed Securities 2006-1 S.A.
Specialised Mortgage Agent GPB - Mortgage
Ukraine Mortgage Loan Finance No. 1 Plc
60
50
30
20
10
06
20 .08
06
20 .09
06
20 .10
06
20 .11
06
20 .12
07
20 .01
07
20 .02
07
20 .03
07
20 .04
07
20 .05
07
20 .06
07
20 .07
07
20 .08
07
20 .09
07
20 .10
07
20 .11
07
20 .12
08
20 .01
08
20 .02
08
20 .03
08
20 .04
08
20 .05
08
.0
6
0
20
CPR [%]
40
7
CIS Auto-Loan Deal Performance
Delinquencies have been low

Defaults do not exceed 4.5% for any transaction
ROOF RUSSIA S.A.
Russian Auto Loans Finance B.V.
Russian Car Loans No. 1 S.A.
Taganka Car Loan Finance PLC
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
2008.06
2008.04
2008.02
2007.12
2007.10
2007.08
2007.06
2007.04
2007.02
2006.12
2006.10
2006.08
2006.06
2006.04
2006.02
2005.12
2005.10
0.00%
2005.08
60+ Delinquences as % of CB

8
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.
9
Trends and Outlook for
Asset Quality
10
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
11
20
02
.
20 01
02
.
20 05
02
20 .09
03
.
20 01
03
20 .05
03
.
20 09
04
.
20 01
04
20 .05
04
.
20 09
05
20 .01
05
.
20 05
05
.
20 09
06
20 .01
06
.
20 05
06
.
20 09
07
20 .01
07
.
20 05
07
20 .09
08
.
20 01
08
.0
5

y-o-y, %
Moody’s Outlook for Russia
Inflation year-over-year percentage change
20
18
16
14
12
10
8
6
4
2
0
12
Moody’s Outlook for Russia
Unemployment Rate/ Employment Growth
Unemployment Rate (LHS)
Employment Growth (RHS)
11
5
10
8
3
7
2
6
5
1
4
0
3
2
Employment Growth, %
4
9
Unemployment Rate, %

-1
1
0
2000
-2
2001
2002
2003
2004
2005
2006
2007
2008
13
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)
14
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
15
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)
16
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
17
Moody’s Outlook for Russia
Housing Loan Growth
Rouble Housing Loans, Mortgage
Foreign Curreny Housing Loan, Mortgage
Rouble Housing Loans, Non-Mortgage
Foreign Currency Loan, Non-Mortgage
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
20
04
.0
20 6
04
.
20 09
04
.1
20 2
05
.0
20 3
05
.
20 06
05
.0
20 9
05
.1
20 2
06
.0
20 3
06
.
20 06
06
.0
20 9
06
.1
20 2
07
.
20 03
07
.0
20 6
07
.0
20 9
07
.
20 12
08
.0
20 3
08
.0
6
RUR Millions

18
Moody’s Outlook for Russia
House Price Index for Moscow/Moscow Region
Moscow
Moscow region
1000
900
800
700
600
500
400
300
200
100
20
00
.0
3
20
00
.1
2
20
01
.0
9
20
02
.0
6
20
03
.0
3
20
03
.1
2
20
04
.0
9
20
05
.0
6
20
06
.0
3
20
06
.1
2
20
07
.0
9
20
08
.0
6
Index (Base = 100)

19
Moody’s Outlook for Russia
House Price Index for Select Russian Regions
Khanty-Mansi Autonomous Area
Krasnoyarsk Territory
Novosibirsk Region
Sverdlovsk Region
Tyumen Region
1,100
1,000
900
800
700
600
500
400
300
200
100
20
01
.0
3
20
01
.0
20 9
02
.0
3
20
02
.0
20 9
03
.0
3
20
03
.0
20 9
04
.0
3
20
04
.0
20 9
05
.0
3
20
05
.0
20 9
06
.0
3
20
06
.0
20 9
07
.0
20 3
07
.0
9
20
08
.0
3
Index (Base = 100)

20
Has Moody’s View of
the Region Changed?
21
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
22
Increased
Transparency of Rating
Agencies
23
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…
24
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%
25
Disclosed Assumption for Russian RMBS

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%
26
Disclosed Assumption for Russian RMBS

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
27
Disclosed Assumptions for Russian RMBS

Frequency of Default (based on LTV) Curve
40.00%
35.00%
Default probability (%)
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
20%
30%
40%
50%
60%
70%
80%
90%
100%
LTV (%) (Loan-to-Value)
28
Disclosed Assumption for Russian RMBS
29
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30