First-time rating

April 07, 2008 -- Moody's Investors Service has assigned a national scale issuer rating of Aa1.ua to Raiffeisen Leasing Aval (RLA), a Ukrainian universal leasing company. The newly assigned rating does not carry any specific outlook.

According to Moody's, RLA's Aa1.ua issuer rating is underpinned by (i) the ongoing support that the company receives from Raiffeisen Bank Aval (RBA) (rated Baa1/P-2/D), the Raiffeisen group entity (RBA's ultimate parent is Raiffeisen Zentralbank Oesterreich AG (Aa2/P-1/C)) with which it is most closely associated and which takes responsibility for RLA's risk management, (ii) favorable asset quality metrics to date, (iii) its reasonable underwriting standards to date and (iv) the cross-selling opportunities with its parent supporting the further development of the issuer's franchise. The rating also reflects RLA's embryonic but rapidly growing franchise since its creation in 2006 in Ukraine's promising leasing market, where it is a top ten player.

However, RLA's rating is constrained by: (i) the typical risks that arise for green-field projects as a result of a short track record of operations (since 2006) such as the challenge of successfully balancing long-term growth, profitability and underwriting considerations given the firm's currently limited scale; (ii) the concentration risk in its loan portfolio, as the top 20 exposures at year-end 2007 were 22 times greater than the company's pre-tax pre-provision income and accounted for 18 times 2007 year-end equity as well as high concentration to specific industries; (iii) a very low capitalisation and still low internal capacity to generate capital, requiring external capital injections; (iv) its excessive dependence on its ultimate parent Group for funding and its poor liquidity on a stand-alone basis, as RLA runs its business without any cash cushion on its balance sheet and relies fully on its credit facilities from its parent, (v) low level of loan impairement reserves relative to the amount and characteristics of its portfolio and (vi) competitive pressure from local and foreign owned leasing companies may put pressure on net interest margins as well as credit underwriting.

Moody's added that the Aa1.ua rating is higher than the stand-alone rating that would have been assigned to the company if it did not enjoy parental support from RBA. In addition, given that Ukrainian leasing companies are a loosely regulated industry, RLA is not required to comply with the prudential ratios set by the National Bank of Ukraine that apply to banks, in terms of capitalisation or liquidity, for example, which implies additional risks in comparison with local banking peers.

The rating agency notes that RLA is a fully consolidated subsidiary of RBA, the second-largest bank in Ukraine. RLA's ultimate parent is Raiffeisen Zentralbank Oesterreich AG.

With its head office in Kyiv, Raiffeisen Leasing Aval reported total assets of US$146 million, total equity of US$4.6 million and net profit of US$2.4 million, under audited IFRS statements for the year 2007.

National Scale Ratings

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Ukraine are designated by the ".ua" suffix. NSRs differ from global scale ratings in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country.