Nicholas Watson in Prague -

While the financial crisis has certainly cast a pall over the securitised issuance market in Russia and the rest of the CIS, delinquency levels of residential mortgage-backed securities (RMBS) and auto-related asset-backed securities (ABS) remain blissfully low - at least for now.

So far this year, Moody's Investors Service has rated just two new securitised deals in these segments: the Russian RMBS deal Second Mortgage Agent AHML and the Ukrainian auto ABS deal Ukraine Auto Loan Finance No.1 PLC. With few new issues coming to market, attention is focused on how those issues have performed. In September, Moody's released a surprisingly positive first-half performance index report on RMBS and ABS in the CIS markets.

Looking at the RMBS segment, Moody's said delinquency levels have been low, with seven out of 11 transactions having delinquency levels below 0.50% and the highest reported delinquency - which also includes defaults - standing at below 3%. Moody's said the RMBS constant prepayment rate (CPR), which measures prepayments as a percentage of the outstanding loan, has remained high in the range of 10% to 30%, averaging 20% in the first half. Total early redemption, or refinancing, of the loans contributes to more than half the CPR figure, while the rest is due to additional payments made by borrowers.

The high level of refinancing in recent times is mainly down to the fall in interest rates and more favourable lending conditions, which makes refinancing these securitised loans at the lower interest rates good financial sense. Given the financial crisis is forcing many banks to put up mortgage rates and tighten lending criteria, analysts expect a subsequent decline in the refinancing rate.

The relatively high amount of additional payments made by borrowers indicates to Tatiana Sannikova of Renaissance Capital not only the willingness of borrowers to minimise their risk profile by paying off their mortgages, but also their ability to do so. "This shows borrowers' incomes are clearly more than adequate to make these prepayments, as many banks set their minimum repayment figure at a reasonably high level," Sannikova says.

Health warning

The Moody's index does, however, come with a health warning: the specific performance figures for the various RMBS and ABS deals are difficult to compare directly because of differences in the definitions of delinquency and default in the deal documentation, and the absence of uniform reporting standards. For example, in one RMBS deal, loans 60 days delinquent are reported as in default, whereas in another deal a loan isn't in default until it's 240 days delinquent.

Such difficulties prompted Fitch Ratings in October to announce it would assess the potential impact of the sharp deterioration in global financial conditions on the 10 securitisation transactions it rates in Russia, Ukraine and Kazakhstan. "While this review considers the impact of worsening macro and financial conditions, [Fitch] notes that at an individual level, rated transactions have performed strongly so far, with low default rates and modest delinquencies," the agency said.

On RMBS in particular, Fitch said default rates of mortgage loans originated in emerging economies need to be assessed on a lender-by-lender basis, because the comparably short historical data series and lack of market standardisation make it too hard to adopt country-wide default probability assumptions. "Based on data provided by a limited number of emerging market lenders and national institutions, Fitch cannot yet make general default assumptions for emerging economy jurisdictions. Therefore, the agency believes the assessment of emerging market mortgage loans' propensity to default should be based on detailed performance data provided by lenders, preferably on a loan-by-loan basis," said Nicolas Ardoint, associate director at Fitch's RMBS team.

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