Monday, March 21 2011 18:00
Insurance will settle the problem with lack of money for prepayment
ArmInfo’s interview with Chairman Gevorg Bosnoyan, Chairman of the Association of Participants in the Mortgage Market of Armenia
Mr. Bosnoyan, the Association has recently presented a new mortgage product that should help our citizens settle the problem with lack of money for mortgage prepayment. Please, explain the functional peculiarities of the new product.
Today the lack of mortgage prepayment disturbs many co-citizens to buy housing by mortgage. Many potential borrowers having good incomes for the mortgage lack the required amount of the
prepayment. In order to help such borrowers, we have decided to workout a new product for our market with the help of the insurance companies. This product is very actively practiced in many countries of the world. Its introduction will allow reducing the prepayment amount.
As far as we know the new product will half the prepayment size…
We have studied the international experience of mortgage development and arrived at a conclusion that we need new products, instruments and mechanisms of mortgage lending.
The new product implies an insurance policy, which will become a kind of guarantee for the insurance company to refund the mortgage sum in case of an insurable event. The insurance component hedges the bank's risk and allows it to make certain concessions for the prepayment
reduction from 30% to 15% of the mortgage amount. Thus, the insurance company insures only 15% of the mortgage amount for the period the insured amount is repaid by the borrower.
When the new product will be ready?
The Association is going to complete development of the new product by late Q3 2011.
What is the approximate cost of the product – insurance policy?
Starting from early 2012 the new product will raise the mortgage crediting activeness in
the country. The Association has not yet determined the value of the insurance policy. A special working group set up in the Association will deal with this and many other issues. The Association assures that the new product price will create no big cost loading for the borrowers, as the product contains no serious risks for insurers, consequently, its price will be as low as possible.
The product is interesting, indeed, but is it enough to lead the market to tangible changes?
Immediately after successful introduction of the product, the Association will start working out the next mechanism, i.e. the mortgage accumulation program. With the help of this mechanism a potential borrower will be able to accumulate in the bank the required amount of the prepayment and receive benefits when registering the mortgage loan.
May the toughened monetary policy spoil you plans to grow the mortgage portfolio?
Interest rates have not been changed after the toughening monetary policy. Banks still manage to get resources and lend to the population on the effective interest rates. What will happen later? We’ll wait and see. However, it is wrong doing nothing and waiting for negative changes. I am optimistic about future. I think that with the support of the Central bank our Association will successfully implement its goals. In addition, with help of the International Financial Corporation we will attract foreign specialists who have big experience in development of such products.
What insurance companies will be involved in the process?
All the insurance companies can take part in elaboration and further sale of the new product. At present, the Association includes 4 insurance companies: Rosgosstrakh-Armenia, Cascade Insurance, Sil Insurance and Nairi Insurance. We have already received preliminary approval by the mega-regulator and will do everything possible for successful implementation of the program.
Who will invest in Armenian mortgage securities?
The key investors in the Armenian securities can be insurance companies that have managed to form definite money reserves thanks to introduction of compulsory insurance in the country. The National Mortgage Company was established by the Central Bank of Armenia and is engaged refinancing of mortgage loans. The company earlier expressed an intension to organize issue of mortgage securities in Armenia, but crisis made it postpone the issue till
more favorable period of time.
What about the high interest rates?
Issue of mortgage bonds expected in late 2011 will help forming a dynamically developing secondary mortgage market in Armenia. There are little opportunities in Armenia to upgrade accessibility of mortgage loans (lowering interest and extending maturity) for lack of a developed mortgage securities market. Standardization of mortgage lending processes is necessary for development of the mortgage market i.e. evaluation of a borrower's solvency, pledge security, and insurance aspects. Only a high-quality mortgage market with strictly elaborated mechanisms and standards will make us attractive for both local and foreign investors.
What changes do you expect in the mortgage market till the end of 2011?
No tangible changes. We expect certain activity in early 2012.
Do you connect activity in the mortgage market with introduction of the new product?
No. Besides the new product, issue of mortgage securities is expected, which will help developing the market.
What scales of mortgage lending do you forecast?
The mortgage lending in Armenia will grow twofold by the end of 2014. The mortgage loan portfolio amounted to 97 bln drams by the end of 2010, having grown by 6 bln drams versus 2009. Due to our novelties, the portfolio may growth to 120 bln drams in late 2012. to 150 bln drams till late 2013 and to 180 bln drams till late 2014.
Elita Babayan
