Azerbaijan housing finance system

STRATEGIC OVERVIEW

The Republic of AzerbaijanGeneral introduction

Capital: Baku

Bordering countries: Turkey,

Russia, Iran, Georgia. Armenia,

Kazakhstan

and Turkmenistan

Area: 86,600 km2

Population: 9.077.000

GDP in 2010: $52 bln, growth 5%

Currency: Azeri Manat

Rate AZN: 1 USD   0.78

1 EUR   1.12

Strategic reserve: $34,2 bln

Country rating: Fitch BBB -

Main macroeconomic indicators

The housing stock in Azerbaijan dated later 2010 is 111,6 mln.m2

The dwelling space per capita is 12,8 m2

Average prices for residential housing in Baku, ($/m)

Azerbaijan Mortgage Fund

• The AMF was established under the Central Bank of Azerbaijan (CBA) by decree of the

President of The Republic of Azerbaijan about “Establishing mortgage loans system in

Azerbaijan” numbered 299, dated 16 September 2005

• AMF:

• Only state entity established for the purpose of refinancing mortgage loans;

• Azerbaijan Mortgage Fund is a state institution, legal entity;

• Mortgage loans is offering to borrowers by authorized credit organizations selected by

the CBA;

• Main functions of AMF are:

• Refinancing mortgage loans originated by pre-approved banks;

• Assigning requirements for refinanced mortgage loans;

• İssue mortgage bonds in order to attract financial resources;

• Managing of financial risk in order to provide its activity and stability;

Within its authorities makes measures to provide liquidity of mortgage lending field

and attracts financial resources.

AMF Mission

“The main purpose of AMF is to provide mechanisms for housing finance through long-term mortgage loans, as well as to facilitate attraction of local and foreign

financial resources”

Presidential Decree N339Baku, December 22, 2005

Development stages

Creating of legislation base - 2004-2005

Establishing of AMF under the CBA - 2005

Institutionalization and standardization process 2005- 2006

Granting the mortgage loan and forming of the market -2006- 2007

Transition to self-financing mechanism and issuing of cover bonds 2009-

2011

Financial sources

Allocation from State budget;

Earnings from activity including payments on loan principal and interest;

Funds raised from emission of AMF’s securities and its placement;

Foreign loans, technical assistance, grants, etc. to AMF

Other sources stipulated by legislation.

Structure:

•AMF consists of 11 divisions and one branch

• Staff number 57

• Board of Directors - Executive Board of Central Bank of the Azerbaijan Republic

• Executive body- Executive director and two deputies of Executive director

Activity:

• Mortgage loans refinanced by AMF are granted by 24 Banks pre-approved by NBA .

• Mortgage objects are appraised by 12 appraisal companies selected by the AMF

• Mortgage objects are insured by 14 insurance companies selected by the AMF

Azerbaijan Mortgage Fund (refinancing scheme)

Azerbaijan Mortgage Fund (only operator in

second market)

Accredited credit organizations (banks)

Borrowers

Mortgage loans

Refinancing

Allocations from state budget

Cover bonds of AMF

AMF products

Standard credits Sosial credits

Purpose Purchasing house or flat Purchasing house or flat

Borrower Citizen of Azerbaijan Republic • Citizen of Azerbaijan Republic• Privileged cateqories (young families

amd military personel)

Credit amount: 50 000 AZN (62 500 USD)

35 000 AZN(43 750 USD)

Currency: AZN AZN

İnterst rate 8% 4%

Term 25 years 30 years

Insurance: Life and property Life and property

LTV: 80% 85%

Payment method: Monthly annuity payment Monthly annuity payment

Mortgage loans by authorized credit organizations, mln.AZN

The dynamics of financial resources for mortgage loans, mln. AZN

Bond details Covered Uncovered Covered

Term 7 years 10 years 10 years

Coupon rate 3% 3.25% 3%

Bonds in mln.USD 68,75 93,75 47,5

AMF’s assets, mln. AZN01.06.2011

Total assets :285 624 308,11 AZN357 030 385,14 USD

AMF’s quotation rate = 4%

1%

AMF’s spread

4%

Margin

ACO’s margin ≤ 4%

AMF’s quotation rate

≤ 8%

3%

Cost of funding

Loan interest rate

Strengths of housing finance system

Existence of strong standardization

The control of Central Bank over the system

No default cases in mortgage portfolio

Small portion of mortgage loans comparison with demand

AMF’s long-term foreign and local currency rating to 'BBB-‘

equals to country ratings.Development perspectives of housing finance market

Results of market research

Demand exceeds offer 6 times

Main problems and difficulties

Registration of property and mortgage rights, problems related to

foreclosure process;

Insufficient legislation on cover bonds (mortgage bonds);

Enlihgtment problems related to independent appraisals

Low development level of capital markets;

Absence of potential investors and long term resources in internal market;

Limited conditions and access opportunities to foreign markets

Absence of AMF’s and bank’s relevant experience

Future plans:

To develop and apply new products (Repair mortgage, private house

construction mortgage, commercial mortgages, etc.)

Development of legal framework (Law on mortgage bonds, Law on Housing

Construction Savings and etc.)

Creating of mortgage quarantee mechanizm for mortgage loans

Shift to market conditions in order to provide sustainability of mortgage system

Issuing of mortgage bonds

Automation of business processes and to apply e-mortgage

Improve mortgage requirements and standards

Tel: + (99412) 598 18 01/02/03 Faks: + (99412) 598 11 77

info@amf.azwww.amf.az

Azerbaijan Mortgage Fund under the Central Bank of Azerbaijan

THANK YOU!