Real Estate FinancingStanding its ground in a challenging environment
St. Peterbourg, 14-15 May 2009
Anna V. IvanovaEurobank EFG Bulgaria
Real Estate FinancingStanding its ground in a challenging environment
Anna V. IvanovaEurobank EFG Bulgaria
St. Petersburg, 14-15 May 2009
Page 2
Global Markets InstabilityGlobal Markets Instability and Risks and Risks
Significant degree of uncertainty in commercial real estate markets
Increased volatility of prices & values expected whilst the market absorbs various issues and reaches its conclusions
Lack of liquidity in the capital markets
Page 3
Property Market Structure & Trends in BulgariaProperty Market Structure & Trends in Bulgaria
Privatization process practically completed
Interests turning to RE investment
Bulgaria has recently joined the E.U. as a full member
Stable macroeconomic environment
Bulgarian property market immature
Currency board in place
Increased confidence
Further reinforces demand for prime location property
Opens up new perspectives
FDI inflows
Page 4
Macroeconomic EnvironmentMacroeconomic Environment
FDI in Real Estate and Construction
216
534
1778
2505
1900
82 172
501797
465
0
1000
2000
3000
2004 2005 2006 2007 2008
mln €
Real Estate Construction
Stable macroeconomic environment
Still decent GDP growth
Inflation slowing down (to 4.9% YoY at the end of Q1 ‘09)
Significant CAD improvement (by 55% YOY in the end of Feb ’09)
Stable public finances (3% planned budget surplus)
Inflow of FDIs(Traditional focus on RE and construction; in 2008 they amounted up to 40% of the total FDIs)
Although the credit crunch undoubtedly affected the banking and RE sectors, its impact tend to be much softer than in other SEE countries due to:
GDP Real Growth
6.6%
6.0%6.2%6.2% 6.3%
4.0%
5.0%
6.0%
7.0%
2004 2005 2006 2007 2008
Page 5
Latest RE market challenges in BulgariaLatest RE market challenges in Bulgaria
Approximately 15 projects for shopping centers and retail parks have been postponed throughout the country, mainly due to lack of debt financing;
Rental levels on the high street of major Bulgarian cities have decreased by 5-15%;
The vacancy levels of shopping centers in some secondary cities is still relatively high;
Many planned office projects have been put on-hold while others have been frozen during the rough construction process;
The overall vacancy rate for office space continued to increase;
Residential properties market slowed down and prices went down;
The financial crises will have a sobering effect on the RE market reducing The financial crises will have a sobering effect on the RE market reducing the number of projects that are developed, as well as pressuring the market:the number of projects that are developed, as well as pressuring the market:
Page 6
Banking sector adapting …Banking sector adapting …
Review interest rates
Balanced lending growth
Intensified deposit gathering
Focus on credit riskMore conservative approach
Review of credit criteria (much more selective in terms of ‘fit’ customers)
Lower loan-to-value ratio
Restructuring and renegotiation processes started throughout the banking sector
Strengthen collection activities
Redeployment of resources
… … in an exceptionally challenging operating environmentin an exceptionally challenging operating environment
Page 7
Residential property loans: Residential property loans: 44 phases phases
Phase 1: Fueling the market (2003-2005)
Increasing loan-to-value ratio
Decreasing interest rates
Easing collateral rules
AVG Interest Rates, New Mortgage Loans to Individuals
9.20%8.85%
9.20%
10.46%10.76%
9.37%
8.00% 8.12%
9.06%
8.27%
6.0%
7.5%
9.0%
10.5%
12.0%
H1 '07 H2 '07 H1 '08 H2 '08 Q1 '09
BGN denominated EUR denominated
+156 bps
Phase 4: Focus on credit risk (2008-2009)
Higher interest rates
Strict requirements for income proof
Lending at lower LTV
Restructuring & Collection activities
Phase 2: Price competition (2005-2006)
0% rates for the first year
Lower introductory fixed rates for the first
1-2-3 years
Financing of properties under construction
Phase 3: Focus on profitability and customer
service (2006-2008)
Promoting floating rates for the entire period
Longer tenors
Cross-selling (credit cards, consumer loans)
Page 8
Reaching the limits … and back to basicsReaching the limits … and back to basics
SizeSize
No limitNo limit
Int. rateInt. rate
6.4-7.9%6.4-7.9%
TenorTenor
5-35y5-35y
LTVLTV
70-100%70-100%
Debt toDebt to
incomeincome
60-70%60-70%
FeesFees
1-2.5%1-2.5%
Since H2 ’08:Product standardization (lack of promotions)
Going away from risk (higher risk premiums, no prepayment fees)
Upper limit set at EUR 100 000 (with income proof only)
Until H1 ‘08:Until H1 ‘08:Quick response time (2-3 days for initial approval)
Bundling (credit cards, additional consumer loans, internet banking)
No documentary proof of income (for BG citizens only)
SizeSize
LimitedLimited
Int. rateInt. rate
9.8-11.6%9.8-11.6%
TenorTenor
10-25y10-25y
LTVLTV
60-80%60-80%
Debt toDebt to
Income Income
30-40%30-40%
FeesFees
1.5-3%1.5-3%
Page 9
Banking sector prioritiesBanking sector priorities
Survival of the ‘fittest’Survival of the ‘fittest’
To sustain and improve pre-provision earnings capacity (loan margin, fee business, cross-selling, cost containment)
To further strengthen the Risk management process (underwriting, collection, conservative provisioning policy)
To improve the effectiveness of balance sheet management (further strengthen capital position and liquidity management)
Crisis is an opportunity to strengthen the value of our franchise (Stand by our client – deepen relationship)
Page 10
EFG Eurobank – a regional banking groupEFG Eurobank – a regional banking group
(London Branch)
Universal Bank
Total assets amounting to €82.2bn and PAT reaching €652 mln
A force of more than 24 000 people in 8 countries throughout CSEE
A distribution network of over 1 700 locations
Page 11
Postbank – a member of EFG GroupPostbank – a member of EFG Group
Established in 1991
99.7% owned by EFG Eurobank
Eurobank EFG acquired DZI Bank in Sept ’06
Postbank – DZI merger in 2007
Present in more than 220 locations
Workforce in excess of 2 700
Strengths: Local knowledge, good brand recognition, wide range of services
Sister companies – Leasing, Factoring, Investment Banking, Card operations, Business services and Property valuation, advisory and management.
Leading universal bankLeading universal bank
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