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 l Introduction to EBRD – EBRD’s Role in the Financial Sector – Experience in Financing Securitisable Assets l Securitisation in Russia – Drivers for Securitisation – Forecast for 2007 2
Introduction to EBRD l l l 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 l Representative offices in all countries of operation l Capital base of € 20 billion 15 successful years of operation 3
EBRD’s Role in the Financial Sector l l 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 4
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 5
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 6
EBRD Approach in Securitisation and Structured Finance – Completed Deals Poland Russia € 25 million and $25 million Mortgage bond framework € 250, 000 Securitisation of Russian consumer loans April 2002 € 300, 000 Securitisation of Russian consumer loans April 2006 November 2005 Purchase of ($ and €) mortgage bonds from Poland’s largest mortgage bank € 30, 000 Hybrid notes € 8, 500, 000 Mezzanine notes Russia € 10, 000 Mezzanine notes Russia $403, 000 € 220, 000 Securitisation of Russian auto loans October 2006 November 2006 $15, 000 Junior notes € 20, 000 Junior notes $20, 000 Commingling risk facility 7
Securitisation in Russia l Transaction Volume: 2006 Volume ($m) 2005 Volume ($m) Volume Change % 2006 # of Transactions 2005 # of Transactions Deal # Change % 3, 475 198 1, 754% 12 2 500% l Assets Types: 8
Reasons for Securitisation Advantages: Disadvantages: l Lower funding costs l High set-up cost l Better asset-liability match l Size limitations l Lower capital requirements l 9 Negative side-effects (covenants on existing finance)
Lower Funding Costs Margin over LIBOR/EURIBOR of recent securitisation deals l RSB I (consumer finance) A 1 165 bp l l RSB II (auto)A 115 bp l B 155 bp l MDM (auto) A 110 bp B 165 bp 10 70 -100 bp on recent 18 -month syndicated loans > 250 bp over swap rate in 3 -year Eurobonds
Better Asset-Liability Match l Deposits still unreliable l Increase in volumes Increase in mismatch l Longer maturities Loan market cannot match l Increase in sophistication in risk management – Realisation of inherent risks in the asset portfolios: prepayment risk, interest rate risk etc. 11
Lower Capital Requirements Capital adequacy in Russia: Equity Requirements: Examples: Securitised RSB (Consumer loans) On balance sheet RSB (auto loans) 7. 2 % 12. 5 % 10 % MDM (auto loans) 6% 10 % 6. 25 % 10 % CMB (RMBS) especially beneficial for better quality assets 12
Costs & Size Limitations l l Even small deals made to work Size of eligible portfolios increased 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 13
What to expect in 2007? l More of the same: – 10+ mandates given l Domestic deals: – launch of the first public onshore RMBS l Synthetic deals: – first CDOs (regional) l Moving upstream: – Warehouse structures – Permanent conduits 14
EBRD Structured Finance and Securitisation Contacts Treasury Financial Institutions Group Kurt Geiger Business Group Director Financial Institutions Tel: Fax: +44 20 7338 7143 +44 20 7338 7380 Email: Geigerk@ebrd. com Jonathan Woollett Director, Structured Finance & Securitisation Tel: Fax: +44 20 7338 6638 +44 20 7338 6105 Email: woolletj@ebrd. com Tõnu Pekk Principal Banker, Structured Finance & Securitisation Tel: Fax: +44 20 7338 7516 +44 20 7338 6199 Email: pekkt@ebrd. com Grant Metcalfe-Smith Head, Client Services Treasury Tel: Fax: Email: : 15 +44 20 7338 7853 +44 20 7338 7880 metcalfg@ebrd. com
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