1. © Moody’s Investors Service June 2006 XVth. International Banking Congress St Petersburg, Russia Basel II

2. © Moody’s Investors Service 2 Agenda Introduction to Russian Banking system Risk Management and Basel II What can be done within Russian and CIS banks to prepare for Internal Ratings based approach What are the benefits?

3. © Moody’s Investors Service 3 Capital requirements Regulatory review process Basel 2 Pillar 1 Pillar 2 Pillar 3 Basel 2 Accord structure: the three pillars Disclosure and market discipline COPYRIGHT © 2006 BY MOODY’S INVESTORS SERVICE. ALL RIGHTS RESERVED.

4. © Moody’s Investors Service 4 The Two Accords Basel I Focuses on a single risk measure Has a simple approach to risk sensitivity Uses a “one size fits all approach to risk capital Basel II Focuses on internal methodologies Is flexible to meet the needs of different banks

5. © Moody’s Investors Service 5 Why move from B1 to B2: the essence of Basel 2 Very good borrower Basel 1 Mediocre borrower Same regulatory capital Goal: to incorporate more risk sensitive credit exposure measures into bank capital requirements Very good borrower Basel 2 Mediocre borrower Regulatory capital

6. © Moody’s Investors Service 6 IRB – some potential implications Management and control Competitive advantage? Better shareholder returns? Incentive for staff? Improved pricing of risk

7. © Moody’s Investors Service 7 Pillar 1: Capital requirement What has not changed:  Min target for BIS capital ratio (8%).  Composition of regulatory capital and the various tiers.  Market risk measurement procedures. What has changed:  Credit-risk weighting of assets and OBS commitments.  New capital requirements for operational risk. COPYRIGHT © 2006 BY MOODY’S INVESTORS SERVICE. ALL RIGHTS RESERVED.

8. © Moody’s Investors Service 8 Foundation IRB Bank’s own estimates Supervisory values set by committee PD LGD EAD M Credit risk weighting of assets COPYRIGHT © 2006 BY MOODY’S INVESTORS SERVICE. ALL RIGHTS RESERVED.

9. © Moody’s Investors Service 9 Pillar 1: Capital requirement What has not changed:  Min target for BIS capital ratio (8%).  Composition of regulatory capital and the various tiers.  Market risk measurement procedures. What has changed:  Credit-risk weighting of assets and OBS commitments.  New capital requirements for operational risk. COPYRIGHT © 2006 BY MOODY’S INVESTORS SERVICE. ALL RIGHTS RESERVED.

10. © Moody’s Investors Service 10 Benefits International and regulatory standing Effective use of capital Access to the capital markets Securitisation Competitive advantages