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29 октября 2014

Mortgage: an Obvious Point of Growth


Today you will rarely come across a financial institution which is developing only one credit product. Nevertheless, there are such institutions, and the Housing Finance Bank is one of them. As far back as 20 years ago, at its very inception, it made a stake on the development of mortgage. In an interview with NBJ, Ruslan ISEEV, Chairman of the Management Board of ZAO Housing Finance Bank has talked about the results achieved by the bank to date, the sources of funding for its operations and his view on future prospects of the banking market in general.

NBJ: Ruslan Maratovich, this year marks the 20th anniversary of the Housing Finance Bank which you head. Please tell us a little bit about its history. Which periods you believe to be crucial in terms of the formation and development of the HFB?

R. ISEEV: Established in 1994, the Housing Finance Bank immediately started positioning itself in the market as a member of PIK Group. This determined its business model: for many years the HFB provided support for the sale of apartments in houses built by the Group. The bank’s operations were quite successful, but the situation changed in 2009, when the HFB ceased to be part of PIK and entered a broad mortgage market. That is, while still being a monoliner – a financial institution developing the mortgage line of business – it became an active market player, in particular, in the secondary residential real estate mortgage market.

NBJ: What is the current size of the portfolio of mortgage loans originated by the HFB?

R. ISEEV: Over the past few years, the bank has issued mortgage loans worth more than 50 billion rubles. The portfolio currently served by the HFB (including securitized loans and loans refinanced under the AHML programs) exceeds 25 billion rubles.

NBJ: Do I understand correctly that refinancing through the AHML programs and securitization constitute the main sources of funding for the HFB?

R. ISEEV: Loan refinancing is a broader concept, as it includes both direct sale of mortgage pools to the AHML and sale of pools to other market participants, typically to banking institutions. As I have already said, securitization is currently gaining momentum, and the bank uses pools of its loans as the basis for issuing structured securities – mortgage bonds. At the end of this June, we closed the second transaction of this kind and are very pleased with the results: the senior tranche and the mezzanine tranche were fully acquired by the AHML, and the junior tranche, which accounted for only 10% of the total volume of mortgage-backed securities, remained on the bank’s balance sheet. Naturally, there is a fourth source of funding for the bank’s operations – bridge financing provided by the AHML and other market participants. And the fifth one, the most obvious and in most demand at all banks, is individual deposits. Of course, they are a priori short, but they can be used to a reasonable extent as an alternative to bridge financing.

NBJ: Which of these sources you believe to be the most promising?

R. ISEEV: The share of securitization in total funding is still small, but I must say that it is growing very rapidly. We will continue to resort to this source, because it is not just promising, but also very profitable for the bank. Firstly, we get liquidity and, secondly, de facto retain an interest margin, as we retain the functions of a mortgage servicer and get an additional income (excess spread) as the junior tranche holder.

NBJ: Does a monoline bank need a developed branch network, or can it easily do with a limited number of points of sale?

R. ISEEV: A network of points of sale is definitely very important to us, and we strive to increase the number of offices – not so much in the capital, but rather in the regions. Now our network includes five branches (in Kaliningrad, Omsk, Nizhny Novgorod, Krasnodar and Rostov-on-Don) and 13 sales offices in almost all Russian million-plus cities (except for the Far Eastern Federal District and North Caucasus Federal District). We continue assessing the feasibility of opening new offices and, quite possibly, will expand our regional network on a point-by-point basis.

NBJ: What competitive advantages do you think a monoline bank, which traditionally focuses on mortgage development, has over universal banks?

R. ISEEV: You know, a mortgage is a product which needs to be taken seriously. It produces a false impression: it seems simple at first glance, but actually requires a lot of experience from the bank and constant attention to it both in terms of technology of sales and in terms of aligning business processes within the bank, refinancing and servicing loans issued. Based on the IT platform we have implemented, we have created an effective system for mortgage sales both through an extensive network of partners and through direct sales channels. We have set up a focused system of internal business processes for issuing, approving, servicing and refinancing mortgage loans.

Management (and the entire team) of the bank is focused on the continued relevance of our product line, the optimization of our business processes, and the improvement of the quality of customer service. This focus constitutes our major advantage!

Most importantly, our team has many years of experience in the mortgage market (as our core team was formed 10–15 years ago). The bank has a close-knit team united by clear goals and objectives.

All of this allows us to be among the top 15 banks by the volume of mortgage loans issued. Moreover, we are always among the top five in our selected target segments of the mortgage market (for example, currently we are not present in the mortgage market for housing under construction).

NBJ: To conclude, please tell us about the bank’s plans for the future and your view on future prospects of the domestic banking market.

R. ISEEV: Our future plans are reflected in the development strategy, which was approved in 2012 and will run until 2017. In accordance with this strategy, the HFB will continue to focus on mortgage lending, and the main goals that we set for ourselves are to step up the portfolio growth and refinance all mortgage loans originated while retaining the functions of a mortgage servicer and the holder (in portfolio securitization) of the junior tranche of mortgage bonds. As for the prospects of the market in general, I believe they are quite optimistic. Now we see that the supervisory and regulatory policy of the Central Bank aims to improve the transparency and stability of the banking system. This means that the number of questionable players and banks will decrease. The future belongs to those credit institutions that have a properly structured and transparent business model, including monoliners that develop one line of business while being highly knowledgeable about the specifics of their product.  

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