Инг Банк Евразия

FX and money market On Friday the EUR/USD was shaken by a number of data releases from the US, which was fully reflected in USD/RBL dynamics. However, the euro zone currency seems to retain its upward trend against the dollar, resulting primarily from the weaker position of the dollar. As a result, we expect the USD to slip further, likely approaching RBL26.6 this week.

Short-term money market rates remain below 3%, still without signs for any upside in the coming days. Growing primary bond market activity looks unlikely to affect the money market. Banking sector liquidity keeps on swelling: the sum of bank accounts and deposits with the central bank increased by RBL19bn to RBL616bn by Monday morning.

Stanislav Ponomarenko, Moscow (7 495) 755 5480 Rouble bond market

On Friday, bond prices followed Tuesday''s positive dynamic. Debt markets saw the release of US non-farm payrolls and ISM Manufacturing figures, although these had no noticeable impact. US Treasury debt prices initially slipped after the August job report came broadly in line with expectations and prompted some selling (US10Y rose in yield to 4.76%). However later on, US10Y restored, trading around 4.72%. Russia ''30 is keeping its spread over US10Y stable at 106bn. Long OFZ''s continued to rise on the heels of Russia Eurobonds, although with some lag, and the spread OFZ46018 over Russia ''30 fluctuated around 80pb which looks rather wide and gives room for further tightening in the short run. The end of the tax payment period should stimulate demand on the rouble debt market. In addition, positive sentiment in general will encourage corporate primary placements. This week, RBL12bn will be offered to the market with the most interesting being Centertelecom-5 (RBL3bn) on Tuesday and AIJK-2 Moscow region (RBL3bn) on Thursday. Today, taking into account US Labour Day, activity in the external markets is likely to be low, and as a result, the local debt market will move under domestic factors such as the drop in of rouble funds with the beginning of new month and prospects of rouble appreciation.

Olga Golub, Moscow (7 495) 755 5176 Solid 1H06 results for Russian Standard Bank Russian Standard Bank (RSB) keeps on growing at an impressive pace. For the first six months of the year, its assets increased 34% totalling RBL150bn by the end of June 2006. At the same time, the bank managed to improve its margins relative to the previous year. Net interest income amounted to RBL21.4bn in 1H06 compared with RBL19.5bn for the whole 2005, and the net interest margin reached 28.3% in 1H06. The profit of the bank more than doubled in the first-half of 2006 (RBL6.6bn) from the same period last year (RBL2.5bn). To retain the solid growth pace of assets, RSB heavily relied on borrowing on capital markets. Debt securities account for more than 60% of total liabilities of the bank. In addition to the four current issues, RSB plans to offer two more bonds (RBL5bn each) on the local debt market by the end of this year. The bank is also placing EUR300m LPN in September 2006. In our view, the large supply of RSB''s bonds on the local market may restrain investor interest in its rouble bonds and thus the use of this source of funding for the bank. At the same time, to maintain the pace of assets growth, RSB would require an increase of capital. Thus, we are likely to see a moderation of growth of RSB''s assets in the coming quarters. However, the bank''s operating efficiency and position as market leader in consumer finance makes us look favourably on RSB''s credit quality. In our view, there is upside in RSB-4 (yield 8.4% to maturity in March 2008) of around 20bp, although the yield contraction looks set to be restrained by growing exposure to RSB risks. Stanislav Ponomarenko, Moscow (7 495) 755 5480 Upgrade! Today, S&P announced a further upgrade of Russia''s sovereign rating by one notch to BBB+. The upgrade had been expected, in particular after the capital account liberalisation in July and the massive pre-payment of the Paris Club debt in August 2006 (Russia reduced its debt by US$22.3bn). We welcome the upgrade and see it as positive for the market, although its impact is unlikely to be very significant. We expect Russia to continue delivering good news, making another upgrade possible within a year. This will move Russia to the next credit quality group, which will stimulate investment flows and economic modernisation in general. Investment implications: We expect a positive market reaction to the upgrade, although it could be less significant as it had been very much expected. Russia is moving closer to the entry to the A-rated Club, which will be great for its assets and stimulate investment inflow in 2007 and beyond. Julia Tsepliaeva Moscow (7 495) 755 5489

The rouble in reserves The National Bank of Belarus (NBB) will include rouble assets in its reserves Last week, the NBB announced that it would include rouble assets in its international reserves from 1 September 2006. The Russian CBR has expected that CIS countries would convert the part of their reserves in roubles. The CBR has referred to the liberalisation of capital accounts operation, which made the rouble convertible and the high share of roubles in CIS trade (up to 10%). Nevertheless, we consider the Belarusian move as a political gesture. Negotiations on the union of Russia and Belarus remain slow - the creation of a currency union has been postponed to the uncertain future and the Kremlin is growing cool towards President Lukashenko and his regime. The friendly gesture to put the rouble in the same line as the strongest currencies of the world may greatly please the Kremlin. In any case, the dollar is much more common for CIS trade (up to 90%) and the rouble remains a soft currency of a country with a BBB rating. Whatever the current strength of oil prices suggests for the rouble''s mid- and long-term stability, we expect that other CIS countries are unlikely to immediately follow Belarus'' idea. Investment implications: Although 20-30% of Belarus trade accounts for roubles, we consider its decision to convert part of its reserves into rouble assets as politically driven. Other CIS countries are unlikely to follow the NBB, although the CBR believes that this is a likely scenario. Julia Tsepliaeva Moscow (7 495) 755 5489 <<06.09.04-1.pdf>>

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