Fixed Income Snapshot - Presidential elections scheduled on Jan, 17, 2010

MACRO: Ukrainian Parliament adopted the law changing some previous regulations and which is aimed to help in overcoming financial crisis aftermaths. The key measures are:

- The ban on granting FX loans to individuals, which effectively was set in Y08 end, when the banks were forbidden to issue loans to those borrowers who did not have revenues in FX.

- The term of returning FX revenues by exporters to Ukraine was halved to 90 days (the same for import prepayments). In the process of the law adopting the proposal to oblige exporters to sell 50% of FX revenue was removed.

- Early redemptions of loans to non-residents both by individuals and legal persons are prohibited.

- The income from deposits would not be taxed until 2013, which intends to restore deposits inflow into the system.

- Minimum capital requirements for banks are set in UAH instead of EUR.

- Banks get some tax relief: they are allowed to increase their gross expenditures by insurance payments.

- Banks may provide restructuring only for loans to individuals not exceeding UAH 1 mn. Thus, Rada has at last chosen the way of “small lender” support, which most likely was caused by upcoming elections.

Our view: the law is positive for UAH, banks and their retail customers but would bring no major changes. Some of these measures were long expected and had to be taken much earlier to induce material effect.

POLITICS: Rada decided on the date of Presidential elections (399 votes out of 450), which was set on Jan, 17, 2010. That means presidential campaign would officially start on Sep, 19, 2009.

Our view: the news is positive as a part of political risks is eliminated. The decision was passed easy because none of political forces can bet on a landslide. The “old” candidates are not in favor while the new ones have not gained any scores in the play yet.

BANKING: The state would become the full owner of Rodovid bank in early July. After that the ban on creditors’ claims satisfaction may be lifted ahead of schedule and the bank would start to return deposits. According to the bank’s temporary administrator, institution holds UAH2.6 bn of retail deposits, around UAH 0.7 bn are overdue at the moment. The main problem of Rodovid is high rate of NPLs – 17% of bank’s credit portfolio.

Our view: the bank may not face significant deposits outflow as it becomes state-owned. Pre-scheduled lifting of the ban on deposits withdrawal is positive for population’s confidence in banking system. If the same pattern is applied to other troubled large banks, the system’s deposit losses would be at minimum.

MM&FX: Excessive liquidity continues to dominate the market and hits the new Y09 high of UAH 24.3 bn, while UAH 4.7 bn are placed in certificates of deposit. Interbank lending, on the contrary, reached this year minimum tumbling under UAH 1 bn yesterday. The MM rates remain extremely low. The spare money has gone to FX market today, pressing UAH to 7.66/7.69 levels.