Development of mortgage lending in Russia

Development of mortgage lending in Russia

Development of Russian mortgage market: 2007-2012 Mortgage origination, bln. (RUB/$) Mortgage share of residential market turnover 1000 900 800 700 600 500 400 300 200 100 0 800-1000 ($30) 657 ($26) 713 ($24) 557($22) 380 ($13) 153 ($5) 2007 2008 2009 2010 2011 2012 20.0% 15.0% 10.0% 5.0% 0.0% 15.6% 16.9% 17,6% 19,0% 14.6% 11.9% 2,528 2,518 2,161 3,082 3,867 3,400 2007 2008 2009 2010 2011 2012 Number of real estate transactions, thousands Share of mortgage deals in number of real estate transactions,% 5000 4000 3000 2000 1000 0 15% Representative mortgage rates (in rubles) 5.0% Households using mortgage for real estate purchase, cumulated % of total 4.6% 14% 13% 12% 12,6% 12,9% 14,3% 13,1% 11,9% 12,5% 4.0% 3.0% 2.0% 1.0% 1.1% 1.7% 2.0% 2.5% 3.4% 11% 2007 2008 2009 2010 2011 2012 0.0% 2007 2008 2009 2010 2011 2012 Sources: Central Bank of Russian Federation, Russian State Registrar, AHML forecasts 2

01/04/07 01/06/07 01/08/07 01/10/07 01/12/07 01/02/08 01/04/08 01/06/08 01/08/08 01/10/08 01/12/08 01/02/09 01/04/09 01/06/09 01/08/09 01/10/09 01/12/09 01/02/10 01/04/10 01/06/10 01/08/10 01/10/10 01/12/10 01/02/11 01/04/11 01/06/11 01/08/11 01/10/11 01/12/11 01/02/12 01/04/12 Quality of Russian mortgage market Market portfolio 4.6 1.1 1.6 4.8 0.7 0.4 1.4 3.3 01.04.2011 (%) 01.04.2012 (%) 88.0 94.2 no delay 1-30 days 31-90 days 91-180 days more than 180 days no delay 1-30 days 31-90 days 91-180 days more than 180 days Domestic MBS 1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% Weighted average NPL share in mortgage collateral Sources: Central Bank of Russian Federation, AHML 3

Agency for Housing Mortgage Lending (AHML) AHML was established in 1997 by Decree of the Russian Government as a national institute for the development of the mortgage lending market 100% owned by the Russian Government Included in the list of strategically important enterprises of the Russian Federation Operates through a wide network of mortgage originators across Russia Government support Government guarantees for AHML internal bonds issues Special purpose credit line for construction support Capital injections Assets structure, RUB bln ($, bln) 16.27 ($0.55) 11.55 ($0.39) 268.93 ($9.15) 84.29 ($2.87) Liabilities structure, RUB bln ($, bln) 0.9 ($0,03) 35.52 ($1.21) 4.33 ($0.15) 154.96 ($5.27) 156.82 ($5.34) 114.21 ($3.89) 4 Cash and cash due from credit institutions Mortgages Loans issued Other assets Bonds issued Other borrowed funds Loans from banks Other liabilities 4

AHML role in steady market development AHML group bases its strategy on mortgage market development cycles and changes its priorities according to the stage of the cycle to smooth it s fluctuations. I. Growth stage II. Maturity (stable) stage III. Declining (crisis) stage Development of the secondary mortgage market Risk assumption Mortgage market infrastructure development 5

01/02/2008 01/04/2008 01/06/2008 01/08/2008 01/10/2008 01/12/2008 01/02/2009 01/04/2009 01/06/2009 01/08/2009 01/10/2009 01/12/2009 01/02/2010 01/04/2010 01/06/2010 01/08/2010 01/10/2010 01/12/2010 01/02/2011 01/04/2011 01/06/2011 01/08/2011 01/10/2011 01/12/2011 01/02/2012 Net liquidity level of Russian banking sector and AHML influence on mortgage market recovery 3000 35.00% 2000 30.00% 1000 25.00% 20.00% 0 15.00% -1000 10.00% -2000 5.00% -3000 Net liquidity, bln rub Share 33 per. of Mov. AHML Avg. refinancing (Share of in AHML the mortgage refinancing origination in the mortgage volume, % oregination volume, %) 0.00% Sources: Central Bank of Russian Federation, AHML estimation 6

Mortgage market financing through securitization Since 2006 16 domestic RMBS deals for total 122 bln RUB ($4,3 bln) and 13 cross-border RMBS deals for more than 61 bln RUB ($2,1 bln) were originated. Mortgage backed securities, bln RUB 50 47 46 45 40 35 31 32 30 25 20 15 13 14 10 5 0 2006 2007 2008 2009 2010 2011 Cross-border RMBS deals 10 26 25 0 0 0 Domestic covered bonds 0 2 0 15 0 15 Domestic RMBS deals 3 3 22 17 14 31 AHML share in domestic issues is 50% Sources:Сbonds, AHML 7

Russian legislation requirements: Measures to maintain mortgage asset quality Special regulation for mortgage market and RMBS; All issuers of MBS (RMBS and covered bonds) are required to publish the Mortgage collateral registry as part of the emission documentation and then on a monthly basis, which contains detailed information on each mortgage loan included in the mortgage collateral (outstanding debt, interest rate, term, market value, region and type of mortgage collateral, delinquency, insurance, etc); Mortgage loans with LTV higher than 80% are not allowed to be securitized; Property insurance amount should match mortgage loan amount; An independent licensed organization (specialized depository) keeps mortgage certificates and monitors mortgage collateral to comply with all legislation and emission documents; The original par value of MBS can not exceed principal amount of loans included in the mortgage collateral; Mortgage loans included in the mortgage collateral can not be replaced except in a closed list of instances (the most common is default); Defaulted mortgage loans are not included in the amount of mortgage collateral; Investors have the right to claim prepayment in case of issuer`s violation of legal requirements and/or terms of emission documents. Requirements of AHML RMBS programs: AHML can purchase a senior tranche of RMBS or provide a guarantee for senior tranche of RMBS if the equity is not less than 10% of the issue and is kept on the originator s balance; For loans with LTV higher than 70% mortgage insurance is recommended. 8

AHML RMBS programs Programs for refinancing of RMBS have been launched for the following purposes: Development of Russian RMBS Liquidity supply for lenders Interest rate risk hedging Bridge financing to accumulate pool or complete the transaction (not more than 70% of senior tranche volume) RMBS Programs Term Beginning End Volume Program 1 30.09.2010 31.12.2012 20 bln RUB. ($0,67 bln.) Program 2 29.09.2011 27.12.2013 20 bln RUB. ($0,67 bln) Program 3 13.04.2012 27.12.2013 20 bln. RUB. ($0,67 bln) 9

The main characteristics of AHML s senior note purchase program The maximum transaction size per originator should be up to 5 bln RUB ($170 mln), minimum 1 bln RUB ($30 mln) Issued notes must comply with the requirements of the federal law on MBS Issued notes must be denominated in RUB Junior tranche notes must represent at least 10% of the total asset balance The junior tranches should be retained by the originator The notes security must represent a senior claim in the waterfall The notes must be either Rated by at least one of the rating agencies (Fitch, Moody s and S&P) at a minimum rating of BBB- (Fitch or S&P) and Baa3 (Moody s). Unrated by rating agencies where AHML provides a guarantee and makes its own analysis, sets the haircuts and required subordination levels for the notes. 2 10

Russian Pension Fund investments in RMBS State Corporation The Bank for Development and Foreign Economic Affairs (VEB) is the managing company of Russian Pension Fund VEB RMBS Program - 150 bln RUB. ($5.1 bln) VEB provides buyout guarantees for senior domestic RMBS tranches with collateral conforming the following: Maximum loan amount 8 mln RUB. ($270,000) for Moscow and St. Petersburg, and 3 mln RUB ($100,000) for the rest of Russia Interest rate for mortgage loans not higher then 11% Primary residential market only (new construction) 11