FHB - Potential Newcomer at FHB - Potential Newcomer at Euro CMB MarketsEuro CMB Markets

FHB - Potential Newcomer at FHB - Potential Newcomer at Euro CMB MarketsEuro CMB Markets

Presentation byPresentation by

FHB Land Credit and Mortgage BankFHB Land Credit and Mortgage Bank

June 2002 June 2002

ContentsContentsContentsContents

• Mortgage banking in Hungary

• FHB - financial highlights

• FHB and its DCM activity

Mortgage Banking in Hungary I.Mortgage Banking in Hungary I.Mortgage Banking in Hungary I.Mortgage Banking in Hungary I.Institutional set-upInstitutional set-up: three operating mortgage banks

– FHBFHB (1998)• main focus on residential mortgage• fully state owned

– HVB (1999)• predominantly commercial mortgage• private

– OTP Mortgage Bank (2002)• mixed loan portfolio• 100 % owned by OTP Bank (The biggest Hungarian bank)

CMB MARKET SHARE 2001

HVB12%

FHB88%

Mortgage Banking in Hungary II.Mortgage Banking in Hungary II.Mortgage Banking in Hungary II.Mortgage Banking in Hungary II.Legislative frameworkLegislative framework• Special law on mortgage banking: Act XXX. 1997

– basis: German model (strict ratios - 60% LTV)– CMB-s: fully compliant with relevant EU UCITS directive

for covered securities• credit institution (Mortgage Bank) as issuer• subject to special supervision (additional coverage supervisor)• priority status for CMB holders

• Modification of mortgage legislation 2001Modification of mortgage legislation 2001– enhancing cooperation between mortgage banks and

commercial banks (purchase of independent lien)

REFINANCINGREFINANCING!!

FHB Financial highlightsFinancial highlights (as of 31 December 2001)(as of 31 December 2001)

FHB Financial highlightsFinancial highlights (as of 31 December 2001)(as of 31 December 2001)

BN HUF M EUR

Own Capital 5,256 21.5

Total Assets 35,200 143.7

Total CMB`s 26,636 108,7

P&L -598 -2.4

CAR 26%

-0,3

-0,8

-1,5

-0,6

0,5

1,5

5,8

-5,2

-2,4

1,9

-1,1

-3,1

-2

-1,5

-1

-0,5

0

0,5

1

1,5

2

1998. 1999. 2000. 2001. 2002.E 2003.F

MEUR

-6

-4

-2

0

2

4

6BN HUF

P&L BN HUF P&L M EUR

• Break-even: loan portfolio about 30 BN HUF (130m Euro)• Turnaround to positive cash-flow: November 2001• First 5 months 2002: confirmation of the trend

Profit & Loss Accounts Profit & Loss Accounts 1998-20031998-2003

Profit & Loss Accounts Profit & Loss Accounts 1998-20031998-2003

FHB`s Lending StrategyFHB`s Lending StrategyFHB`s Lending StrategyFHB`s Lending StrategyAsset portfolio: Asset portfolio: • 93 % residential loan

– geographically well diversified– high quality (over 96% current and performing)– over collateralized (280%)

• Average maturity: 11 years • Average size: 4 MHUF (15.000 EUR)

• Multilevel distribution (loan placement) channels– Insurance agents– Commercial banks ( refinancing)

3 5 1531

65

130

-10

10

30

50

70

90

110

130

BNHUF

1998 1999 2000 2001 2002E 2003F

YEAR END LOAN PORTFOLIO

11,9 19,6 56126

265

530

1998 1999 2000 2001 2002E 2003F

M EUR

FHB`s Lending StrategyFHB`s Lending StrategyFHB`s Lending StrategyFHB`s Lending Strategy

FHB`s Funding StrategyFunding Strategy FHB`s Funding StrategyFunding Strategy

• 1998-2001: Relying on private placements– average size: 0,5-1,5 BN HUF(2-6 M EUR), 13 closed series,– average spread: T + 70-100 b.p.

• 2001: Shift to public offerings – the aim greater transparency and higher liquidity– average size:7-20 BN HUF (30-80 M EUR)/series, monthly twin auctions, 2-

3 fold over subscription, – average spread: T + 55-80 b.p.– 2 series (6yr fix) closed, 3 series open

• Distribution: – shift from subscription to calendar type free auctioning – selling and price quoting consortium (7 ”PD-s”)

FHB`s Funding StrategyFunding Strategy II. II. FHB`s Funding StrategyFunding Strategy II. II.

1 3 1027

76

146

-10

10

3050

70

90

110

130

150

BN

HUF

1998 1999 2000 2001 2002E 2003F

TOTAL OUTSTANDING CMB-S

3 12 36110

304

584

1998 1999 2000 2001 2002E 2003F

M EUR

Challenges aheadChallenges aheadChallenges aheadChallenges ahead• Steady growth of mortgage lending

– FHB total assets grew by 74% in 2001• Estimated growth in 2002: 95%

• Narrow domestic institutional investor base– total assets of ”QIB”-s: 2000 BN HUF (8 BN EUR)

(only 13% of GDP)

– reluctance to diversify fixed income portfolio(funding potential/mortgage bank/year: 30-35 BN HUF)

• Other investors (retail and banks): limited interest (15 BN HUF)

Future funding strategyFuture funding strategyFuture funding strategyFuture funding strategy• Priorities:

– expanding the investor base– further improving liquidity

• Tools to achieve these goals:– obtaining international credit rating (due diligence

starts in July)– setting up an EMTN program (EuroHUF, EUR)– entering Euro market

ConclusionConclusionConclusionConclusion

Why to purchase FHB’s CMB issuesWhy to purchase FHB’s CMB issues ??

– Diversification of convergence credit portfolio

– Yield pick-up over the Hungarian sovereign

– Safe long term investment