Alpha Bank Romania. Introducing Cover Bonds in Romania

Transcription

1 Alpha Bank Romania Introducing Cover Bonds in Romania May 218

2 RO residential market: building on a growth momentum Population is living in overcrowded dwellings. Home ownership is considered a prerequisite for individual financial stability Overcrowding rate (%)* Overcrowding rate: 48% RO vs. 17% EU average Ex-communist countries in CEE have high ownership rates as a result of a policy in the early 9 s to sell the state s houses at affordable prices in the urban areas Data as of 216 Ownership rate (%) *Overcrowding rate is defined as the percentage of population living in an overcrowded household RO Housing affordability increased over time Affordability index based on avg. net wage* # real estate transactions ths (rha) Affordability index based on min. net wage* Index computed as the ratio of monthly net income (adjusted for consumption) to the optimal income required to take out a housing loan under prudential conditions (7 LTV and 4 DSTI). Dec-8 Dec-9 Dec- Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 *Assumptions: 2-room apartment with 55 sqm priced at market price (average - country level), household comprising two members earning the avg./min. net wage, consumption rate, 3% taxation for min. wage x higher vs x higher vs. 28 Dwellings stock is old: of RO dwellings are at least 5-years old vs. 3 in EU pushed by declining prices and increased wages 84% < >2 74% 74% RO has currently ~9m dwellings, ~5 located in urban areas 74% of RO owner-occupied dwellings were build before 199 % 6% Average net wage vs. 28 (nominal terms) Price/sqm vs. 28 (nominal terms) # years for saving the down-payment (rha)* 217 minimum net wage was 2.8x higher vs. 28 (nominal terms) 83% % 43% 52% 4% 8 34% % 6 21% 21% - 4 8% 11% -4% -39% 2-6% HU BG RO PL CZ HU BG RO PL CZ HU BG RO PL CZ Source: Eurostat, RO Central Bank, National Institute of Statistics, European Mortgage Federation, The national cadastre and real estate advertising agency, Imobiliare.ro *Assumptions: 2-room standard apartment with 55 sqm, 7 LTV, consumption rate, 2 saving rate for an individual earning the average net wage LTV- Loan-to-value; DSTI Debt service-to-income 2

3 RO residential market supported by housing loans Housing loans increased significantly over the past years The number of housing loans almost tripled during % CAGR # of existing active housing loans accounts at the end of the period (k) 59% of 217 housing loans are denominated in LCY vs. 8% in 28 54% of HH loans financed housing acquisitions in 217 vs. 21% in b # of new accounts (net) during the period (k) 428 First House loans EURb Total Housing loans 5.4 Housing loans (adjusted for First House ) EURb 5.5 Gross amounts b * yet, housing loans /GDP remains low as RO market is young First housing loan was launched in 21 LTV of new housing stock decreased below Higher quality of housing loans compared to other loan types % 9% 7% Housing loans % GDP (as of 217) LTV new loans LTV stock LTV of stock not adjusted with First House loans NPL - Housing loans NPL - Total HH sector NPL - System level 2.7% NPL definition compliant with EBA 6% 4% 3% % 24% % 8% 86% 77% 83% 4..6% 2.7% 6.4% 5.8% % DK SE NL UK CY LU PT ES FI FR MT DE BE GR EE SK AT IE CZ IT PL LT LV HR SI BG HU RO Dec-14 Dec-17 Dec-14 Dec-17 Source: RO central bank, Credit Bureau, National Institute of Statistics, ECB, Eurostat, EMF Hypostat 217 report * First House loans as of September 217 First House - governmental program for supporting first home buyers. Main features: down payment, reduced margins, guarantee offered by the National Guarantee Fund for Small and Medium Enterprises 3

4 RO banks have been relying on conventional funding strategies Robust growth of deposits Overnight deposits, EURb +8% CAGR Term deposits, EURb Total private deposits (HH & NFCs & Other non-monetary institutions), EURb 65 Currently, domestic savings fully cover private loans x EURb Financing (Deficit) / Surplus (Private loans Private Deposits, adjusted for MRR*) Loans-to-Deposit ratio (total domestic private sector), rha x shifted funding towards internal resources but there is a maturity gap generating potential vulnerabilities 7 6 EURb Private domestic deposits deposits Foreign Liabilities LT foreign liabilities: EUR 15b, equivalent of 3% of total private loans LT foreign liabilities: EUR 12b, equivalent of 26% of total private loans 217 LT foreign liabilities: EUR 6b, equivalent of 12% of total private loans years years 23 years Financing LT loans with short-term deposits Financing LT loans with short-term deposits Financing LT loans with short-term deposits Foreign liabilities include mainly deposits and borrowings from financial institutions, especially parent banks Avg. maturity of private deposits Housing loans remaining tenor 3.8 Avg. maturity of private deposits Housing loans remaining tenor 4.1 Avg. maturity of private deposits Housing loans remaining tenor Source: RO central bank, ABR estimates *MRR minimum reserve requirement ratio (a fraction of LCY and FCY-denominated liabilities of credit institutions held at central bank) 4

5 Assessing RO potential for issuing CBs The existence of an adequate legal framework, alongside further residential market development, should enhance banks appetite for diversifying funding 118b Total assets of RO banking system Data as of September 217 Regulatory constraints 4%* 6%* 8%* 4.7b Maximum value of cover pool 7.1b Maximum value of cover pool 9.5b Maximum value of cover pool overcollateralization overcollateralization overcollateralization (market practice) 2% (required by law) (market practice) 2% (required by law) (market practice) 2% (required by law) Min. value of loans included in CB pool 3.9b 4.6b 5.9b 7.b 7.9b 9.3b Min. value of loans included in CB pool Min. value of loans included in CB pool 3.8b Minimum value of eligible mortgage loans needed for cover pool 5.7b Minimum value of eligible mortgage loans needed for cover pool 7.6b Minimum value of eligible mortgage loans needed for cover pool 18% 26% 3 21b Total mortgage loans (housing and commercial) at system level (adjusted for NPLs & First House loans impact) Source: NBR, Mortgage covered bond law 34/215, NBR Regulation 1/216 *The cap on total assets depends on the cumulative assessment of 5 indicators: own funds ratio, liquid assets/liquid liabilities, NPL ratio (EBA definition), Percentage of foreign liabilities in total liabilities, Percentage of foreign denominated loans in total loans 5

6 Key takeaways Currently, Romania has the two main prerequisites for introducing Covered Bonds: increased demand for housing loans and an adequate CB regulatory framework. RO covered bond market potential ranges between EUR 4 9b (total amount) The introduction of CB instruments could provide key benefits for the economy: Expansion of financial intermediation Improvement in asset-liabilities management: mitigate the maturity mismatch between loans and funding sources Prudence in loan origination process: covered bonds can be secured on a portfolio of high-quality mortgage assets with an /6% loan-to-value ratio (residential/commercial) and subject to strict quality controls Stability of the financial system: banks with a broad and diversified range of funding tools are more resilient. In times of crisis, CBs allow banks to continue access funding markets when other funding channels are drying up Development of local capital market By aligning to currently shaping trends (Energy Efficient Mortgages Initiative), RO banks could play an important role in achieving long-term energy efficiency targets by providing lending aimed to improve energy performance with preferential financing conditions 6

7