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Banking in Russia

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Macro presentation brbc february 2014

Macro presentation brbc february 2014


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  • 1. [Enter reference here] 04/02/2014 17:58 Russian economy How to change this “new normality”? Dmitry Polevoy, PhD Chief Economist, Russia & CIS Moscow February 2013
  • 2. [Enter reference here] 04/02/2014 17:58 Part I RUSSIA IN A GLOBAL CONTEXT – FROM A BIRD’S-EYE VIEW 7 January 2009 1
  • 3. [Enter reference here] 04/02/2014 17:58 Russia – the 6th largest economy globally 25% 2000 2012 20% 15% A rise from 2.6% to 3% 10% 5% 0% Source: IMF 7 January 2009 2
  • 4. 2013-18 expected GDP, %YoY Slower expected GDP growth – a story of higher wealth, but only partly [Enter reference here] 04/02/2014 17:58 8% CHN 7% 6% KAZ 5% IND TUR 4% ZAF 3% MEX POL CZE BRA 2% BGR UKR 1% KOR RUS JPN HUN 0% 0 10000 20000 30000 40000 GDP per capita, US$ PPP Source: IMF 7 January 2009 3
  • 5. [Enter reference here] 04/02/2014 17:58 2000-08 avg. CPI growth Historically high inflation was a natural pay for rapid economic growth before the crisis… 30% TUR 25% 20% RUS 15% 10% HUN UKR BRA 5% 0% BGR ZAF MEX POL KOR KAZ IND CZE CHN -5% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 2000-08 avg. GDP growth Source: IMF 7 January 2009 4
  • 6. 2010-13 vs 2000-08 CPI …but now slower growth serves as key disinflationary factor in many countries [Enter reference here] 04/02/2014 17:58 10% 5% CHN KOR BRA CZE 0% BGR -5% -10% IND RUS KAZ HUN ZAF JPN MEX POL UKR -15% TUR -20% -6% -5% -4% -3% -2% -1% 0% 1% 2% 2010-13 vs 2000-08 GDP Source: IMF 7 January 2009 5
  • 7. [Enter reference here] 04/02/2014 17:58 2010-13 vs 2000-08 CPI Inflation vs Unemployment – a mixed pattern 10% 5% CHN KOR 0% -5% BRA POL CZE KAZ RUS -10% ZAF MEX BGR UKR -15% TUR -20% -6% -5% -4% -3% -2% -1% 0% 1% 2% 2010-13 vs 2000-08 unemployment Source: IMF 7 January 2009 6
  • 8. 2000-13 avg. budget balance Russia still has superior government budget/debt metrics (% of GDP) [Enter reference here] 04/02/2014 17:58 5% KAZ RUS BGR 0% KOR ZAF MEX CZE CHN TUR POL UKR -5% BRA HUN IND -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Gross public debt, 2013F Source: IMF 7 January 2009 7
  • 9. [Enter reference here] 04/02/2014 17:58 Part II RUSSIA ECONOMIC OUTLOOK 7 January 2009 8
  • 10. [Enter reference here] 04/02/2014 17:58 GDP: Even 2% looks good now for Russia… 15 12  GDP growth slowed from 3.4% to 1.3% in 2013 GDP growth by key components 10 8 5 4 0 0 -5 -10 Contribution to GDP, ppt -4 -8 -15 Priv. cons-n Inventories Gov. cons-n Net export Investments GDP,%YoY (rhs) PMI composite index flags GDP growth at 2% at best 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% 60.0 57.5 55.0 52.5 50.0 47.5 45.0 42.5 40.0 37.5 35.0 PMI composite 7 January 2009 despite remaining consumption growth GDP, which totally added 2.3ppt…  …while other items dragged GDP down – inventories (-0.8ppt), net exports (-0.2ppt) and investments (-0.1ppt).  Zero contribution of the public consumption to GDP looks extremely challenging, especially under mounting calls for extra fiscal boost  Our base-case forecast has been 2.3% for 2014, while downside risks are mounting with something near 1% looking as the worst-case  4Q13 rise in PMI indices seems to haven’t translated into stronger GDP expansion and weak January PMI manuf. flags stagnation GDP growth, %Y oY 9
  • 11. [Enter reference here] 04/02/2014 17:58 Export – minerals, import – nearly all the rest External trade breakdown (% of total)  Whether oil-dependence is a gift or a curse for the outlook – a source of long disputes… Others Machinery /transport  …but the WTO accession is no doubt a key for structural changes needed to reduce economic and fiscal vulnerability to oil price swings Metals Textile Export Import Wood & paper Chemicals Minerals Food 0% 20% 40% Others 60% 80% Trade balances in US$bn Machinery , transport Metals Textile, f ootwear Wood & paper US$247bn Leather, f ur Chemicals Minerals Food, agriculture -100 -50 0 2001-2003 av g 50 100 2009-2011 av g Source: Rosstat, ING 7 January 2009 10
  • 12. [Enter reference here] 04/02/2014 17:58 Export: Growth rates vs “World” GDP  Weighted-average GDP of key Russia trade partners is seen at 2-2.3% in 2014-15 vs 1-1.5% in 2013, 1.1% in 2012 and 2.5% in 2011…  …while the Euro-component of global growth is key risk, given 50% of exports goes to Europe 25% 20% 2004- 2010 2011- 2013 Russia export grow th 15% 10% 5% 0% -5% 4Q08-3Q09 -10% -15% -20% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Trade partners grow th Source: Rosstat, Customs Service, ING 7 January 2009 11
  • 13. [Enter reference here] 04/02/2014 17:58 Imports: Will remain a function of domestic demand performance  After a visible decoupling from domestic demand in 2011, imports growth has “normalized”…  …and despite recent exports acceleration in 2013, imports will likely continue growing faster 40% The gap conv erged and won’t likely reappear 30% 20% 15% 20% 10% 10% 5% 0% 0% -10% -5% -20% -30% -10% -40% -15% Ex ( real %YoY ) Im (rea l % YoY) Domestic d emand proxy (rh s) Source: Rosstat, Customs Service, ING 7 January 2009 12
  • 14. [Enter reference here] 04/02/2014 17:58 Personal income & wages: supported by low unemployment and social skew of the budget 30 Nominal wage growth: public vs private sectors Contribution to nominal wage growth (ppt) 25 20  Solid wages growth since late-2011 was spurred by not only a healthy employment, but also a doubledigit rise in public and military & police salaries  Private sector ‘s adding to wage growth has been moderating to 5-6ppt since 2H12 (vs 10ppt in 20111H12) due to corporates’ cost controls… 15 10  …while 2014 freeze of public wages and only moderate hikes in 2015-16 will reduce their contribution to the overall wages growth too 5 0 Private wa ges Pub lic wages  Worsening demographic trend is a challenge for growth/budget, but supportive for employment Key income indicators vs unemployment rate 20% 5.0% 12% 6.5% 4% 8.0% -4% 9.5% Demographic trend vs unemployment 64% 11% MinEco f orecast 62% 10% 9% 60% 8% 58% 7% 56% % of working-age population 30 20 27 20 24 20 21 20 18 20 15 20 12 20 09 20 06 20 20 20 Real wage Disp. income Unemployment rate (rhs) Unemployment, seas-adj (rhs) 03 4% 00 11.0% 6% 5% 52% -12% 54% Unemploy ment rate (rhs) Source: Rosstat, MinFin, MinEco, ING 7 January 2009 13
  • 15. Russia leads in the CIS, but still lags behind the US by labor productivity [Enter reference here] 04/02/2014 17:58 Labor productivity vs the US level (GDP per employee, converted to US$ using PPP) 45% 40% 35% 30% 25% 20% 15% 10% 5% 199 9 200 0 200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 Russia Ukr aine Kazakhsta n Source: Ukrstat, CEIC Database, ING 7 January 2009 14
  • 16. [Enter reference here] 04/02/2014 17:58 Lagging labor productivity vs real wages is still the biggest challenge… Cumulative growth of labor productivity vs real wages Manufactu ring Transport/Tel cos Real estate Russia avg. Trade Mining Agr icul ture Utili ties Constru ction Hotels/catering Fish ery Growth over 2010-12 -10% -5% 0% Real wages 5% 10% 15% 20% 25% Labor productivity Source: Rosstat, ING 7 January 2009 15
  • 17. [Enter reference here] 04/02/2014 17:58 …reflected in still rising Unit Labor Costs  Unit labor costs rose by nearly 50% since 2003 in Russia, more than doubled in Ukraine and advanced by only 30% in Kazakhstan Unit Labor Costs (ULC, index, 2003=1) 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 Ukr aine Russia Kazakhsta n Source: Ukrstat, CEIC Database, ING 7 January 2009 16
  • 18. [Enter reference here] 04/02/2014 17:58 Savings & borrowings: Room for balanced lending growth and a bit higher savings Lending growth and banks funding status 135 % 75% 130 % 60% 125 % 45% 120 % 30% 115 % 15% 110 % 0% 105 % -15% Loans-to-deposits ratio (rhs) Retail loans, %YoY Corp. loans, %YoY  Post-crisis rally in retail loans (38%YoY avg since Jan-12) and low savings spurred consumption…  …but also pushed leverage indicators to record highs despite 20+% cost of loans, requiring more funds to service debts  2014-15 will likely see a turn back to a more balanced growth, incl. due to moderating demand from households, banks willingness to lend as freely as before…  …as well as further CBR measures Retail debt servicing Consumer leverage indicators vs savings rate 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 39% 37% 35% 33% 31% 29% 27% 25% 23% 21% 30% 25% 20% 15% 10% 5% 0% Retail loans to income Savings+FX, % of income Retail loans to wage (rhs) Retail debt payments (principal+interest) as % of annual incomes Source: Rosstat, ING 7 January 2009 17
  • 19. [Enter reference here] 04/02/2014 17:58 GDP growth vs Gross National Savings Avg. 2000-2008 Avg. 2009-2013 55% 50% 40% 35% KOR RUS 30% JPN CZE IND KAZ 25% UKR MEX POL 20% HUN 15% BRA TUR ZAF BGR 3% 6% 45% 40% 35% 9% 12% GDP growth, %YoY KAZ RUS 25% 20% IND KOR 30% CZE HUN JPN BGR 15% UKR 10% 0% 50% Gross nat. savings, %/GDP 45% Gross nat. savings, %/GDP CHN CHN 10% -3% MEX POL BRA TUR ZAF 0% 3% 6% 9% 12% GDP growth, %YoY  Economic theory and recent history suggest that Gross National Savings remain key GDP driver…  …and post-crisis period proved again that lower savings seem to have contributed to slower growth Source: IMF, Rosstat, Ukrstat, Customs Service, CEIC Database, ING 7 January 2009 18
  • 20. [Enter reference here] 04/02/2014 17:58 Manufacturing sector operates nearly close to pre-crisis capacity utilization 80 Avg. capacity utilization rate (% of total available) 80 75 75 70 70 65 65 60 60 55 55 50 50 45 45 Mining Manufacturing Utilities Source: Rosstat 7 January 2009 19
  • 21. [Enter reference here] 04/02/2014 17:58 Investments: Now more self-reliant, while still sentiments-driven and conditional on oil…  Post-crisis reality forced companies to rely mostly on own funds when funding capex programs… Investments by funding sources (% of total) 100% 20% 22% 16% 22% 22% 22% 21% 20% 21% 21% 22% 6% 10% 6% 9% 7% 11% 25% 26% 20% 19% 6% 9% 5% 8% 23% 80% 20% 18% 60% 7% 8% 9% 5% 22% 7% 7% 11% 40% 20% 45% 45% 48% 42% 40% 39% 9% 37% 41% 42% 18% 5% 8% 45% 0% 2003 2004 Current/retained profit 2005 2006 2007 2008 2009 2010 2011 2012 Bank loans Non-bank loans Budget Others (incl. intercompany loans)  …with falling role of fiscal & bank funding and more focus on intercompany loans…  Uncertain outlook and falling profits clearly depressed investments…  …with strong profits link to RUB oil price flagging key risk for investments outlook  Pre-tax profits dynamics looks weak and recent improvements have been only marginal with only mining and telecoms seeing profits growth in 11M13 Corporate profits dynamics (% YoY) Corporate profits vs oil price in RUB 900 0 800 0 700 0 600 0 500 0 400 0 300 0 200 0 100 0 400 0 360 0 320 0 280 0 240 0 200 0 160 0 120 0 800 90% 60% 30% 0% -30% -60% -90% -120 % Pre-tax profit, 12M rolling (RUBbn) Urals, RUB/bbl (rhs) Source: Rosstat, ING 7 January 2009 20
  • 22. Investments: still hoarding cash – preparing for the worst? 90% Fixed investments dynamics and financial indicators 80% 30% 20% 70% 10% 60% 0% 50% -10% 40% 30% -20% 20% -30% Corp.deposits/12M investments 12M pre-tax profit/12M investments Current accnts/12M investments Investments, %YoY (rhs) 120 00 Corporate funds in banks (RUBbn) 100 00 [Enter reference here] 04/02/2014 17:58  BUT...  ...corporate funds in banks have continued rising not only as a share to annual investments...  ...but in absolute terms as well…  ...which could indicate several factors, including future external debt repayments, M&A activity etc. as well as extremely uncertain macro outlook…  In any case, it is an issue how to force companies to start spending all this cash pile 800 0 600 0 400 0 200 0 0 Corp. d eposits Corp. curre nt accounts Source: Rosstat, ING 7 January 2009 21
  • 23. [Enter reference here] 04/02/2014 17:58 Investments: Lower public investment takes its toll as well... 120 % Investments by form of property (nominal %YoY growth) 90%  In 2009-12 nominal private investments grew by 60% vs 20% in the public sector…  …and the breakdown by source of funds helps to make the similar conclusion on budget money… 60%  In 9M13 gas sector, transport and utilities made the lion’s share of overall decline in investments… 30%  …and deteriorating fiscal outlook makes the overall investments performance even more sensitive to private sector behavior... 0% -30% Federa l Municipal Region al Private se ctor Investments by source of funding (nominal %YoY 4Q growth) 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30%  The planned usage of the National Wealth Fund money for infrastructure spending may improve the short-term outlook 9M13 investments of big & medium corporates (ppt. contribution) Others Trade Oil sector Agr icul ture Social Real estate Manuf. exl. oi l Constru ction Telecoms Transport excl. p ipes Utili ties Natural gaz Tota l -6.5 ppt of total 6.9 ppt -7 Bud get funds -6 -5 -4 -3 -2 -1 0 1 Non-bu dget fund s Source: Rosstat, ING 7 January 2009 22
  • 24. [Enter reference here] 04/02/2014 17:58 Inflation – mostly a non-monetary phenomenon… Oil vs producer energy prices (%YoY)  INGF for Brent of US$105-110/bbl flag energy price pressure on PPI inflation to be modest in 2014-15… ING forecast at 100% US$105-110/bbl 80% 60% 40% 20% 0% -20% -40% -60% Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Oil export net-back Urals  New tariffs hikes schedule, good grains harvest, a reversal of the base effect and no monetary pressure will push CPI to CBR targets in 2014-15  Key risks are local/global food prices dynamics, pass-through effects of weaker RUB and the expected rise in alcohol/gasoline/tobacco excises PPI mining sector (lhs) PPI oil products CPI inflation by key components % MoM 3.0%  …which together with contained pricing activity in manufacturing/services is good for CPI outlook % Y oY 16% 2.5% 14% 2.0% 12% 1.5% 10% 1.0% 8% 0.5% 16% Money supply and core inflation 60% ING forecast 14% 50% 12% 40% 10% 30% 8% 20% 6% 6% 10% 0.0% 4% 4% 0% -0.5% 2% 2% -10% 0% -20% Food Non-Food Services Inflation (rhs) Series1 Core CPI M2 gr owth, 15m l ead ( rhs) Source: Rosstat, ING 7 January 2009 23
  • 25. [Enter reference here] 04/02/2014 17:58 ...and the recent tariff decisions reduce risks, even though not fully  A freeze/slower hikes in utilities tariffs for corporates/households – key disinflationary factor…  ...however the planned hikes of excises on alcohol (18-20% avg.), tobacco (30-50%) and gasoline (510%) in 2014-15 will continue keeping their toll on inflation given their 9% share in consumer basket, ie nearly the same as utilities tariffs 10% 9% A shif t in tarif f s hike f rom January to July 17.5% 15.0% 8% 12.5% 7% 10.0% 6% 7.5% 5% 5.0% 4% 2.5% 3% 0.0% 2% -2.5% Food, e xcl. fruits/vegetable s and alcoho l Non-food, excl. g aso line Ser vices, excl. housing, uti litie s and transport Core CPI Source: Rosstat, ING 7 January 2009 24
  • 26. [Enter reference here] 04/02/2014 17:58 Subdued inflation in core manufacturing sectors – well done, but could it last forever? Selected producer price indices (December 2009=1) 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 Manuf. sector excl. gasoline PPI utilities PPI gasoline Source: Rosstat, ING 7 January 2009 25
  • 27. [Enter reference here] 04/02/2014 17:58 Local grain prices have started drifting lower, recovering a discount to the global market Dynamics of local and global wheat prices, CRB food index 550 500 450 400 350 300 250 200 120 00 100 00 800 0 600 0 400 0 200 0 Local wheat price (RUB/t) Global wheat price (RUB/t) CRB food price index (rhs) Source: Bloomberg, Rosstat, ING 7 January 2009 26
  • 28. [Enter reference here] 04/02/2014 17:58 CBR policy outlook – a balancing act for CPI, growth, RUB and liquidity Banking sector liquidity (RUBbn) 490 0 250 0 420 0 200 0 350 0 150 0 280 0 100 0 210 0 140 0 500 700 0 0 Corresp.accounts Banks deposits CBR notes holdings CBR loans (rhs) Factors affecting local liquidity 10 8 6 4 RUBtn  After two years of steady liquidity sterilization, budget started taking money off the system slowly due to fiscal deficit…  …while the CBR is still acting as a “lender of last resort” keeping monetary inflation in check  Above-target CPI and high inflation expectations, lower potential GDP growth (1.5-2%) and RUB weakness will likely keep the CBR on hold till 2H14  New refinancing facilities (312-P loans, min. 3M rate 5.75%) will likely be used to target 3M MosPrime rate down from current 7.20-7.25% 10% Key policy rates vs money market O/N rate 10% 9% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 2 0 -2 -4 -6 9% 8% 0% O/N MM Budget RRR FX-interventions CBR refinancing Refi rate O/N RUB swap CPI, % YoY Core CPI, %YoY Cash Auctio n REPO Fixed REPO O/N depo Source: Rosstat, ING 7 January 2009 27
  • 29. [Enter reference here] 04/02/2014 17:58 RUB – the CBR has continued adding more flexibility to the RUB CBR FX policy – How it worked... Corridor Width Range  CBR had kept details on its FX-policy mechanism a secret, but in early October disclosed in full… Volume of including interventions, US$mn un-planned  ...in order to proceed on its way to inflation targeting and full RUB flexibility since 2015 41.30 Upper bound 1 ruble 40.30 - 41.30 -400 250 CBR sells FX 1 ruble 39.30 - 40.30 -200 50 1 ruble 38.30 - 39.30 -70 0 37.30 - 38.30 0 0 36.30 - 37.30 70 0 CBR buys FX 1 ruble 35.30 - 36.30 200 50 1 ruble 34.30 - 35.30 400 250 Neutral - no CBR 1 ruble interventions 1 ruble Lower bound  To succeed in this, the CBR cut the volume of planned interventions finally to zero in Jan-14 reacting to worsened BoP balance...  …and reduced the threshold for a 5 kopecks corridor shift to US$350mn while still keeping the width of the floating corridor at 7 rubles 34.30 …and how it works now Corridor Width Upper bound CBR sells FX Lower bound Volume of including interventions, US$mn un-planned MinFin operations 41.30 0.95 ruble 40.35 - 41.30 1 ruble Technical 0.1 ruble corridor Neutral - no CBR 3 ruble interventions 1 ruble CBR buys FX 0.95 ruble 7 January 2009 Range -400 -400 39.35 - 40.35 -200 -200 39.25 - 39.35 0 0 36.25 - 39.25 0 35.25 - 36.25 200 200 34.30 - 35.25 400 400 MinFin purchase/sale of + FX for/from the 0 Reserve Fund 34.30 28
  • 30. [Enter reference here] 04/02/2014 17:58 RUB vs Oil prices – on diverging paths RUB remains correlated with oil price, but periods of weakening/broken correlations occur more often and expensive oil is already not enough for the RUB to grow steadily 42.0 41.0 40.0 39.0 38.0 37.0 36.0 35.0 34.0 33.0 32.0 31.0 50 60 70 80 90 100 110 120 130 140 150 RUB/basket 7 January 2009 CBR coridor Urals, US$/bbl (rhs) 29
  • 31. RUB – capital flight is a pay for higher RUB flexibility, but not fully 100 75 50 25 0 -25 -50 -75 Balance of Payments breakdown US$bn TB (goods+serv.) F/A-govnmt Errors/omissions 60 40 20 0 -20 -40 -60 -80 C/A others F/A-banks Capital flight, rhs US$bn 80  50 20 -10  -40 -70 -100  -130 Cap/A F/A-corporates [Enter reference here] 04/02/2014 17:58 High oil prices have supported decent C/A surplus, but it will likely continue evaporating with services trade/income earnings acting further as a drag 4Q-rolling non-energy C/A deficit hit US$315bn in 4Q13 and will likely continue rising making the RUB fragile High capital outflows is a partial reckoning for higher RUB flexibility under decent C/A surplus…  …while “dubious”&”errors/omissions” piles of capital flight is also high with others of a lower scale  Unchanged political/institutional environment, lower privatization plan, MinFin FX-purchases – risks to RUB BoP financial account components (US$bn, 4Q-rolling) Total and non-energy C/A balance (US$bn) 150 0 100 -50 50 0 -300 -200 7 January 2009 -250 -150 Source: CBR, Rosstat, ING -200 -100 PI C.accts/dep o Dubious de als Errors/ommission s -150 -50 FDI FX-ccy Loand /borro wing s Others -100 -350 Curren t accnt. Capital flo ws 30
  • 32. [Enter reference here] 04/02/2014 17:58 RUB: Low C/A surplus should naturally cap future capital outflows 40 30 20 10 0 -10 -20 -30 -40 -50 -60 2007-1H09 Capital flows (US$bn) 2H09-4Q13 C/A balance (US$bn) -10 -5 0 5 10 15 20 Source: CBR, Rosstat, ING 7 January 2009 31
  • 33. [Enter reference here] 04/02/2014 17:58 RUB: REER has been retreating from all-time highs of 2012-13…  Real RUB strengthening is mostly irrelevant for exports, but still important for imports supporting it 1.9 3.0 1.8 2.8 1.7 Stronger RUB 2.6 2.4 1.6 2.2 1.5 2.0 1.4 1.8 1.3 1.6 1.2 1.4 1.1 1.2 1.0 1.0 USD/RUB EUR/RUB REER Imports, SA (rhs) Source: CBR, Rosstat, ING 7 January 2009 32
  • 34. [Enter reference here] 04/02/2014 17:58 …and more weakening is likely needed to adjust for its overvaluation vs CEEMEA peers 50%:50% EUR: USD basket, % chng since Jun-09  Assuming 3%/1.5% CPI differential over 2014-15 and a further correction back to zero REER change, we arrive at 44-45/basket projections for the RUB by 2015-end…  …but key is whether markets will be able to drive this adjustments over a relatively short period of time? 20% CAD 10% ILS PLN NOK 0% -10% BRL MXN CZK HUF -20% -30% ZAR -40% -50% -15% -10% Strong ccy RON AUD RUB Should be somewhere here after 7% YTD drop NZD INR TRY -5% 0% 5% 10% 15% 20% 25% REER, % chng since Jun-09 7 January 2009 33
  • 35. [Enter reference here] 04/02/2014 17:58 RUB fair-value – Current Account-based estimates flag overshooting at current levels  Our “fair-value” RUB estimates based on the C/A balance flag 35.5-36.0/USD by 2014-end…  …while still not as high as current 35+/USD over January-March, flagging an overhooting 37.0 1.15 35.0 1.22 33.0 1.29 31.0 1.36 29.0 1.43 27.0 1.50 USD/RUB - actual EUR/USD 7 January 2009 USD/RUB - C/A-based 34
  • 36. [Enter reference here] 04/02/2014 17:58 Has the RUB already prices in the USD rally expected later in 2014? 95 37 90 35 85 33 80 31 75 29 70 27 US$ index (DXY) 7 January 2009 USD/RUB 35
  • 37. [Enter reference here] 04/02/2014 17:58 ING FX Forecasts ING forecasts End of period EUR/USD USD/RUB EUR/RUB Basket/RUB Brent (US$/bbl, eop) 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1.38 32.9 45.3 38.5 105 1.33 34.0 45.3 39.1 105 1.3 34.6 45.0 39.3 105 1.25 35.0 43.8 39.0 105 1.2 35.7 43.0 39.0 110 1.2 35.0 42.0 38.2 110 1.2 35.6 42.75 38.8 110 1.2 36.2 43.5 39.5 110 1.2 36.7 44.0 40.0 110 Source: ING 7 January 2009 36
  • 38. [Enter reference here] 04/02/2014 17:58 Disclosures and Disclosures disclaimer ANALYST CERTIFICATION The analyst(s) who prepared this presentation hereby certifies that the views expressed in this presentation accurately reflect his/her personal views about the subject securities or issuers and no part of his/her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. IMPORTANT DISCLOSURES Company disclosures and ratings charts are available from the disclosures page on our website at http://research.ing.com. Valuation and risks: For details of the valuation methodologies used to determine our price targets and risks related to the achievement of these targets refer to the main body of this presentation and/or the most recent company report available at http://research.ing.com. 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ING Vysya Bank Ltd is responsible for the distribution of this presentation in India. 7 January 2009 37