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.
Russian Mortgage Backed Securities 2006-1 S.A. Specialised Mortgage Agent GPB - Mortgage
Ukraine Mortgage Loan Finance No. 1 Plc
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
Russian Mortgage Backed Securities 2006-1 S.A. Specialised Mortgage Agent GPB - Mortgage
Ukraine Mortgage Loan Finance No. 1 Plc
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
Moody’s Outlook for Russia
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
Moody’s Outlook for Russia
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
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%
27
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
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
Disclosed Assumption for Russian RMBS
30
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