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EBRD: Understanding the Drivers for Russian Asset Securitisation

EBRD: Understanding the Drivers for Russian Asset Securitisation. Tõnu Pekk Principal Banker Structured Finance and Securitisation. Agenda. Introduction to EBRD EBRD’s Role in the Financial Sector Experience in Financing Securitisable Assets Securitisation in Russia

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EBRD: Understanding the Drivers for Russian Asset Securitisation

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  1. EBRD: Understanding the Drivers for Russian Asset Securitisation Tõnu Pekk Principal Banker Structured Finance and Securitisation

  2. Agenda • Introduction to EBRD • EBRD’s Role in the Financial Sector • Experience in Financing Securitisable Assets • Securitisation in Russia • Drivers for Securitisation • Forecast for 2007

  3. Introduction to EBRD • International financial institution established in 1991, owned by 60 national and 2 supranational shareholders • Shareholders include CEE, CIS and EU member states, USA, Canada, Japan, Australia, New Zealand, EU and EIB • Promotes market-based economies in 29 countries from Central Europe to Central Asia; provides debt and equity financing to both state and private sector projects • Representative offices in all countries of operation • Capital base of € 20 billion 15 successful years of operation

  4. EBRD’s Role in the Financial Sector • Promote market-based financial institutions and contribute to institution building • Support private and entrepreneurial initiatives, acting as a door opener for local and western investors • Engage in policy dialogue with operators and authorities to strengthen regulatory/legislative frameworks and enhance overall corporate governance and institutions • Support the development of local capital markets, new securities and the access to secondary market refinancing EBRD provides value-added support

  5. EBRD’s Experience in Financing Securitisable Assets Leasing - Portfolio of loans to finance leasing companies throughout the region in excess of € 500 million Mortgage - Portfolio of loans to both commercial banks and specialist mortgage institutions throughout the region also in excess of € 500 million Introduction of EBRD’s Minimum Standards and Best Practices for mortgage lending with the objective of standardising mortgages to facilitate market transactions

  6. EBRD’s Experience in Financing Securitisable Assets (continued) Consumer Finance - Portfolio of loans to consumer finance institutions in the region; key criteria for selecting best market operators in terms of lending practices and transparency Other Assets - Significant lending to SMEs; trade finance receivables

  7. Poland €25 million and $25 million Mortgage bond framework April 2002 Purchase of ($ and €) mortgage bonds from Poland’s largest mortgage bank Russia €250,000,000 Securitisation of Russian consumer loans November 2005 €8,500,000 Mezzanine notes Russia €300,000,000 Securitisation of Russian consumer loans April 2006 €30,000,000 Hybrid notes €10,000,000 Mezzanine notes Russia €220,000,000 Securitisation of Russian auto loans November 2006 €20,000,000 Junior notes EBRD Approach in Securitisation and Structured Finance – Completed Deals Russia $403,000,000 Securitisation of Russian auto loans October 2006 $15,000,000 Junior notes $20,000,000 Commingling risk facility

  8. Securitisation in Russia • Transaction Volume: • Assets Types:

  9. Reasons for Securitisation • Lower funding costs • Better asset-liability match • Lower capital requirements Advantages: Disadvantages: • High set-up cost • Size limitations • Negative side-effects (covenants on existing finance)

  10. Lower Funding Costs • 70-100 bp on recent 18-month syndicated loans • > 250 bp over swap rate in 3-year Eurobonds Margin over LIBOR/EURIBOR of recent securitisation deals • RSB I (consumer finance) A1165 bp • RSB II (auto) A  115 bp B  155 bp • MDM (auto) A  110 bp B  165 bp

  11. Better Asset-Liability Match • Deposits still unreliable • Increase in volumes  Increase in mismatch • Longer maturities  Loan market cannot match • Increase in sophistication in risk management  • Realisation of inherent risks in the asset portfolios: prepayment risk, interest rate risk etc.

  12. Lower Capital Requirements Capital adequacy in Russia:  especially beneficial for better quality assets

  13. Costs & Size Limitations • Even small deals made to work • Size of eligible portfoliosincreased due to asset growth: • Mortgages: market doubled every year from 2002 to exceed $10 billion by the end of 2006 • Consumer finance: The volume of Russian consumer loans has grown from $36 billion at the end of 2005 to $66 billion through September 2006

  14. What to expect in 2007? • More of the same: • 10+ mandates given • Domestic deals: • launch of the first public onshore RMBS • Synthetic deals: • first CDOs (regional) • Moving upstream: • Warehouse structures • Permanent conduits

  15. EBRD Structured Finance and Securitisation Contacts Treasury Financial Institutions Group Grant Metcalfe-Smith Tel:+44 20 7338 7853 Head, Client Services Fax: +44 20 7338 7880 Treasury Email:: metcalfg@ebrd.com

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