Finance

Baku. Ali Ahmadov – APA-Economics. Executive Director of the Azerbaijan Mortgage Fund Fakhri Kazimov gave interview to APA-Economics.

- Azerbaijan Mortgage Fund has been in operation for 7 years. How would you characterize the Fund’s activity over these years and what are the main achievements?

- Azerbaijan Mortgage Fund was founded in 2005. Over the past 7 years, the Fund became the state financial institution that meets housing needs of population and operates on the basis of self-financing principles and continued support of the state. An improved infrastructure for mortgage lending was established and mortgage lending system was formed during this period.

Another important achievement is related to emission of secured bonds. Though the existing legislation in Azerbaijan lets the issue of secured bonds, there wasn’t analogical experience connected with issue of secured bonds in the country until May, 2009. As a first step in this sphere, AMF issued secured bonds by the support of CBA. That issue assumes great importance as a beginning of formation of Azerbaijan’s secondary mortgage market.

Besides, application of single standards in improvement of legislation and mortgage lending can also be considered one of the Fund’s achievements. At present time, commercial banks widely use private mortgage programs of the Fund.

Currently, AMF is as a credit organization that have healthy and high-quality loan portfolio.

I think the main achievement is that during its activity the Fund improved housing conditions of more than 11,000 Azerbaijani citizens. The amount of loans given via AMF made AZN 410.0 mln and most of them (70%) fell to share of youth and young families.  

- Various mechanisms are used in the practice for solution of housing problems in different countries. But what mechanism is important in mortgage lending in Azerbaijan? 

- A number of mortgage lending mechanisms exist in world practice - a universal model of commercial banks, residential and construction deposits model, model of specialized mortgage banks and secondary market model (two-stage model). The practice shows that different models can be applied jointly in mortgage loans system inside one country.  Successful application of different models depends on country’s macroeconomic situation, financial system, capital markets, legislative base and development level of appropriate infrastructure. All these must be taken into consideration in determination of development model for mortgage lending.

Secondary market model was preferred during formation of mortgage lending system in Azerbaijan by taking the abovementioned into account. A two-stage mortgage lending system, which was created in the U.S and successfully applied in several leading countries, was taken as basis during application of this model. The main advantages of this model are involvement of existing banking system to the system, establishment of effective system for state support, formation of liquid secondary mortgage market, as well as stimulation of development of securities market. Thus, this model contains the development of initial and secondary mortgage institutions, as well as securities market.

In Azerbaijan this model is being applied for 7 years. We can say that we are still at the beginning of the road and much work wait realization from viewpoint of both legislation and infrastructure. At present, researches are underway on application of alternative mortgage models. I think that the main purpose in this sphere isn’t the application of any model, but establishment of improved mortgage system that serve the interest of population.

- One of the most frequently sounded opinions in the press during discussions on state budget-2013 was connected with the amount of the funds to be allocated from state budget to mortgage lending. What do you think is that amount enough for meeting the demands?

- In international practice, the activity of analogical institutions such as AMF us supported by the state. Financial support is important for provision of system’s sustainability. In total, in 2005-2012, AZN 136 mln was allocated from state budget to the Fund.

Currently, the funds from state budget are directed to financing of preferential mortgage loans. These means also perform as capital of the Fund and increase borrowing possibilities of AMF from financial markets.

As it is known, state budget-2013 considers allocation of AZN 40 mln for financing of mortgage loans. These funds allow meeting of demands for preferential mortgage loans. In general, annual demand for conventional mortgage loans is a few times more.

Of course, it is impossible to meet the entire demand at the cost of only state budget. From this viewpoint we consider that issue on meeting the demand for mortgage loans at the cost of alternative mortgage programs should be taken into account.

- You noted that, since 2009 conventional mortgage loans are given at the cost of involved means. How does the Fund involve the means at present time and what problems exist in this sphere?

- Since 2009, the Fund realizes attraction of means through the issue of secured bonds and during 2009-2012, AZN 240 mln was involved from domestic financial markets by these bonds. Average period on these bonds makes 7-10 years, annual interest rate makes 3%.

Mortgage system needs existence of developed securities market. Of course, it is important to conduct appropriate researches before the involvement of funds. It should be noted that the involvement of funds through secured mortgage bonds proved itself during global financial crisis, too.

Such bonds are generally secured by mortgage loans portfolio of the issuer. Such bonds are very favorable and attractive for the investors for protection of investors’ rights and reduction of risks. 

The bonds issued by AMF were also provided with loan portfolio of which the demand rights were culled from banks by the Fund. As a result of serious demands and standards, the Fund has formed healthy and high-quality loan portfolio.

These factors increase the interest in domestic market for Fund’s bonds. We consider that domestic market has potential investors and free means and the Fund will use these opportunities in future.

Of course, this sphere has specific problems. Expansion of institutional investors in the country, measures to be implemented for the development of capital and securities markets, establishment of foreign investors’ legal confidence in securities market, improvement of legislation for reliable protection of the interests of issuers and investors can accelerate the solution of the existing problems.

- One of the most interesting questions and actual issues for population is a softening of conditions, interest rate reduction, reduction of down payment and etc. Are any changes expected in this sphere?

- Current conditions on mortgage loans offered via AMF are very useful. Note that not only concessional, but conditions offered on ordinary mortgage loans also acceptable. In comparison with other CIS countries, the most concessional conditions are in Azerbaijan. So, the mortgage loans are given in Russia with annual 10%, Kazakhstan – 13-14%, Ukraine – 15-16%. Generally, interest rates on mortgage loans even in US and other European Countries are between 4-5%.

Though, existing conditions are sufficiently useful, the government always pays attention to improvement of population’s living conditions. For this purpose, the system is constantly being improved and relevant tasks were reflected in Azerbaijani youth in 2011-2015. In this sphere, the proposals agreed with the relevant organizations have already been submitted to the Cabinet of Ministers. The proposals include extension of circle of military servicemen with the right of receiving mortgage loans, youths and young families, increase of maximum sum on ordinary and concessional mortgage loans, automatization of operations in mortgage lending, involvement of long-term financial resources in mortgage lending and development of a state program for provision of complex improvement of construction sector and mortgage lending system. One of the purposed news is creation of guarantee mechanism on mortgage lending. In the international practice, under this mechanism the younger people can receive mortgage loan with paying lower down payment.

- What can you say about Fund’s development plans and perspectives for forthcoming years?

- Mortgage lending system is close with both financial bank sector and apartment construction sector. Meeting of population’s demand for apartment via mortgage lending causes the reviving in apartment market, support of economic activity in construction and related sectors, launch of jobs and support of employment. In practice, the mortgage lending is also as reliable instrument for placement of long-term financial resources of pension funds and insurers, as well as supports development of securities market. For this purpose, state program is offered to adopt. The program includes improvement of legislation, development of mortgage infrastructure, involvement of financial resources in mortgage lending, stimulation of apartment construction sector, widely application of modern technologies in mortgage sphere, strengthening of professional training in mortgage lending and enlargement of population. These are the plans for future.

About current plans, the Fund plans to give AZN 100 mln mortgage lending in 2013. Besides, E-Mortgage System will be applied during first months of 2013. The system serves to increase of transparency of business processes, reduction of officialization period and operational costs, management of financial risks by authorized banks and Fund, generally simplifying of mortgage lending.

Along with abovementioned, Fund will introduce new products within forthcoming years. This makes involvement of financial means in Fund and increase of AMF’s assets important.

Of course, there are many plans. I think, the most important duty in this sphere must be related with realization of these plans.

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