SME asset-backed financing in Eastern Europe An underexploited market? Views of an Originator

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1 SME asset-backed financing in Eastern Europe An underexploited market? Views of an Originator Bratislava, May 15, 2008

2 Agenda Fundamental business motivations for issuers The different market stages in CEE & CIS Challenges and opportunities with respect to SME transactions in CEE/CIS Case Studies RI 2

3 RI: Well Diversified CEE Pure Play Total Assets by Region Top 3 Pan-CEE Bank with more than 13.7mn Customers CE 41% CIS 27% 13.7mn Customers 3,015 Branches (1) Commonwealth of Independent States ( CIS ) 6.5mn Customers 1,499 Branches SEE 32% Total assets: 72.7bn CE 34% Profit before Tax by Region CIS 30% Central Europe ( CE ) 2.0mn Customers 497 Branches South Eastern Europe ( SEE ) SEE 36% 5.2mn Customers 959 Branches Profit before Tax: 1,238mn Note: Figures as of/for FY 2007 (1) Including leasing and other branches. 3

4 From Micros to Large Corporates Seamless & Efficient Customer Service Tailor-made solutions 1 Capitalize on leading position in 9 markets Corporates Large Corporates Mid-market Customers Focus on structured products Leverage crossborder business Lean product portfolio & competent advisory service 2 3 Capture ongoing strong market growth opportunities Focus on acquisition of highly profitable mid-market clients Process optimization 4 Increase share of wallet with international clients Retail Small Enterprises 5 Increase and optimize cross-selling to related business segments 4

5 Fundamental Business Drivers Securitization offers various benefits Risk Transfer/ Equity Relief Risk is shared with external investors Freed-up equity can be reinvested and generates additional income. This process generally makes commercial sense in cases of Growing and Profitable portfolios Funding Funding with matching maturities (in some countries, the only matching funding source for very long-term assets). In certain cases, securitization provides cheaper funding (currently rather the exception). In the long run, access to disintermediated funding sources will become crucial. 5

6 The Market Stages in CEE/CIS The various countries are developed differently Old Old EU EU Member States Sov. Sov. ceiling not not an an issue Long deal track record Seasoned portfolios New EU EU Member States Sov. Sov. ceiling partly an an issue Limited deal history Partly seasoned portfolios Russia Kazakhstan, Ukraine Sov. Sov. ceiling challenging Quite active markets Younger portfolios Future flow flow deals Other CIS/SEE Sov. Sov. ceiling critical Untested markets Legal situation difficult but but not not hopeless Poss. future flow flow deals 6

7 The CEE/CIS Challenges Higher hurdle than for matured markets Country ceiling Top-rated tranches can be rated only slightly above the sovereign rating. Adds to the cost of securitization transactions quite considerably. In particular for issues for CIS but also for the new EU member countries. Less of an issue for synthetic deals in EU member countries Young and rather small portfolios The best suitable portfolio categories (retail, SME) are being offered in the region only since quite recently. Significant stresses applied during the rating process High transaction cost compared to transaction amount Limited rating precedents Rating agencies apply again conservative stresses 7

8 Specific Portfolio Aspects CEE/CIS Portfolios have their specific aspects Many portfolios are based on foreign currency loans Not unusual due to high local currency interest rates and generally beneficial local currency development Foreign currency loan portfolios usually show better default rates than local currency portfolios Legal situation not so bad as you might expect Still, legal track record needs to be built up Lending policies of CEE/CIS banks generally do not reach out for as aggressive segments as some of the Western European and US banks do Generally conservative collateral policies and/or underwriting criteria Still, rating agencies apply tight rating criteria 8

9 The RI SME Experience We applied securitization first to SME/Micro Portfolios! For the first securitization for Raiffeisen Leasing Polska (RLPL), the key target was a diversification of funding sources. The portfolio had a medium size. We decided to go for a true sale securitization with only certain tranches to be structured as term notes and placed to specialized investors As a leasing company, RLPL primarily services micro and SME clients. Because of the success and the good portfolio development, we could increase the transaction in January

10 The ROOF Poland Parameters The First CEE/CIS Leasing Securitization Originator Raiffeisen Leasing Polska S.A. (RLPL) Type of transaction True sale securitization Closing January 2006 and increased in January 2008 Volume PLN 1 bln (approx. EUR 280 mln) Ref. Obligations: PLN denominated vehicle leasing agreements new cars and trucks & trailers) to Polish SME and micro companies Replenishment 3 years from initial closing Average tenor 5.5 years from initial closing 10

11 The ROOF Poland Structure Taylor-made Structure involving key regional players RLPL Leasing Leasing Payments Payments Purchase Price PLN 1 bln ROOF Poland sp.z.o.o. (Polish SPV) EIB-Senior EIB-Senior Tranche Tranche 29.4% 29.4% EIF Guarantee Mezzanine Mezzanine Tr. Tr. 4.1% 4.1% Senior Tr. 64.3% Senior Tr. 64.3% Privately placed to to ABCP ABCP Conduit Leasing Leasing Portfolio Portfolio (20,000 (20,000 Leases Leases PLN PLN 1 1 bln) bln) Non-recourse Non-recourse sale sale of of portfolio portfolio POLAND Junior Tranche 1.3% Junior Tranche 1.3% OFFSHORE Equity Investor 11

12 The RI SME Experience (ctd) For the next SME Deal, we combined 2 countries For the first securitization for Raiffeisen Leasing Polska (RLPL), the key target was a diversification of funding sources. The portfolio had a medium size. We decided to go for a true sale securitization with only certain tranches to be structured as term notes and placed to specialized investors As a leasing company, RLPL primarily services micro and SME clients. Because of the success and the good portfolio development, we could increase the transaction in January In our second transaction for the Raiffeisen Banks in Poland and the Czech Republic, funding was not an issue but rather risk transfer. The combination of two banks brought economies of scale. A synthetic securitization was actually the only way to combine the portfolios of the two originators for this asset class. 12

13 The ROOF CEE Parameters The first synthetic CEE transaction a multi-originator deal Originator Raiffeisenbanks Czech Republic and Poland (RBCZ and RBPL) Type of transaction Synthetic Securitization (unfunded balance sheet CLO) Closing March 2006 Volume EUR 450 mln Assets EUR, CZK and PLN denominated corporate loans to Czech and Polish SME/corporate borrowers Replenishment 5 years Average Tenor 7 years 13

14 The ROOF CEE Structure A fully synthetic structure ideally meeting the goals of all parties Risk Seller KfW-Platform Risk Taker RBCZ Portfolio CDS EUR 183 mln Combined Reference Pool Super Senior 83.9% RBPL Portfolio CDS EUR 267 mln EUR 450 mln Aaa 6% Aa2 1.7% A2 2.8% Ba2 2.8% Junior 2.8% RI 14

15 What will the future bring us? The RI Securitization Strategy in light of the Financial Crisis We continue to apply securitization on a selective basis and if we can agree with investors on mutually acceptable terms Our (modest) targets for using securitizations reflect the current market environment and our wish for a diversified funding structure Establishment of the ROOF-securitization platform Western-level underwriting standards are a key success factor! Servicing and documentation standards to ensure investor confidence Full transparency and information availability to investors and rating agencies Diversification of securitization placement strategies Nowadays rather privately than publicly placed deals Alternative exit strategies such as structured covered bonds/ Pfandbriefe and Repos with ABS paper become more important Fundamentals and the used straight-forward structures very much support the success of CEE/CIS securitizations in the long run 15

16 Contact Georg Feldscher Head of Strategic Portfolio Management Raiffeisen International Bank-Holding AG Tel Fax Contact 16