Updated April 11, 2008

   Bank of Russia (CB) is ready to facilitate small and middle banks to attract long resources by means of mortgage bonds issue. CB began to elaborate on the corresponding amendments

to its own regulations. In the experts' opinion, the amendments will act after mortgage bonds will be included in Bank of Russia Lombard list.

   Bank of Russia considers the opportunity to abrogate the requirement for banks to follow the risks criterion per one borrower in mortgage securitization transactions.

Within such transactions a bank gives a pool of mortgage loans to a qualified agent, and from his balance the mortgage bonds are issued afterwards.

To provide an agent

a mortgage papers' capacity to pay the transfer of loans pool is usually accompanied by granting

the subordinated credit an agent. According to the CB resolution #110-I "About bank statutory requirements", this loan extent is limited by the regulation now, and its value should not exceed 25% of private bank funds.

This limitation hinders small and middle banks to securitize the mortgage loans.

   The instruction to facilitate the Russian banks to access the long resources in terms of liquidity crisis and by means of mortgage bonds issue also, was given

by the Prime Minister Viktor Zubkov to Bank of Russia within the February meeting with the heads of the largest Russian banks.

This instruction is already implemented. "Lately the banks top-managers have several times met the Bank of Russia representatives to discuss amendments to CB regulation", said the European trust bank vice-president, deputy chairman of mortgage lending committee of the Russian Banks' Association Yevgeny Chepenko.

"There have been no particular objections of the regulator concerning this matter".

   Market participants consider that the offered amendments extend substantially the securitization opportunities of the small and middle banks. "The usual pool extent of securitized loans totals around $300-400 million", says the head of the Soyuz Bank structured products management Konstantin Cherkasov.

"The subordinated loan is usually given to an agent for 5-6% ($15-24 million). A bank should have the $60-100 million capital to allot such loan, and not everyone can boast of that". The criterion limitation can be omitted now, having agreed upon the loan allotting with other banks for a commission.

However, according to the market participants, such scheme increases the temporary and operating costs of banks.

   In the opinion of the first deputy chairman of the City Mortgage Bank board Ruslan Iseev, the amendments would be more useful for banks that are at the end of top hundred and at the beginning of the second hundred and for banks specializing in the mortgage lending. Such lending institutions accumulate large volumes of long loans, but the opportunities to attract

long funds are usually limited by securitization only. In Mr. Cherkasov opinion, the amendments would work, when Bank of Russia would include the mortgage bonds in the Lombard list.

"It makes demands for the mortgage papers, which would stimulate their issue", the expert sums up.