Securitization of mortgage loans will entail a further decline in interest rates

ArmInfo. Securitization of  mortgage loans will further reduce interest rates on mortgages. David  Harutyunyan, Deputy Executive Director of ARARATBANK, expressed  opinion in a conversation with the correspondent of ArmInfo,  commenting on the recent debut in the Armenian capital market -  securitization of mortgage loans of the First Mortgage Company,  underwriter and market maker of which is ARARATBANK.

He explained that secured by mortgage loans bonds in comparison with  unsecured from the point of view of the issuer are less a tool  because of the minimum level of risk. Therefore, the decrease in  expenses on attracted funds, namely, interest rates on deposits,  according to D. Harutyunyan, will entail a decrease in lending rates,  incl. on the mortgage.

He noted that in the framework of cooperation with FMC mortgage loans  continue to remain on the balance sheet of the issuer, and from the  point of view of investors serve as additional collateral. "The  issuer itself decides where to put the raised funds. In our  particular case, the First Mortgage Company will direct them to  mortgage lending. Therefore, the impact of securitization on the  mortgage market will be only positive," he said.

At the same time, D. Harutyunyan said that at the moment, ARARATBANK  is negotiating with another company, and after the entry into force  of the RA law "On Secured Mortgage Bonds", the parties will discuss  the details of the bond issue. "I believe that this successful  experience with the First Mortgage Company will serve as a motivation  for other financial organizations," he stressed.  According to the  Central Bank of Armenia for Jan-Oct 2017, interest rates on mortgage  AMD loans have been reduced from 12.9% to 11.6%, and on dollar ones -  from 11.5% to 9.8%. In general, interest rates on loans (including  mortgages and consumer loans) showed the following dynamics in this  period: drams decreased from 16% to 13%, and dollar rates decreased  from 11.8% to 10.2%.

The debut of securitization of mortgage bonds on the capital market  of Armenia took place on December 12, 2017 and on the same day it was  possible to place all the presented volume. Namely, FMC issued two  tranches - dollar and AMD bonds in the amount of 100 million drams  and $ 500 thousand provided with mortgage loans. The underwriter and  the market-maker of these bonds is ARARATBANK.

According to Ranking of credit companies of Armenia as of Sept. 30,  2017, prepared by NA ArmInfo, the credit portfolio of UCC First  Mortgage Company is 7.4 bln AMD or $ 15.4 mln with annual growth of  6.8%. UCC "First Mortgage Company" has been operating in the Armenian  market since April 2004.  Shareholders on 1 October 2017 are Nshan  Atinizyan - 35%, Margrit Atinizyan - 35%, David Atanesyan - 30%. 

In the financial history of Armenia, for the first time,  securitization of assets was carried out at the end of 2015 from a  specially created fund on the basis of asset-backed securities (ABS),  secured by cash flows. The pool was organized by Universal Credit  Companies of Armenia (UCO) - CARD Agro-credit, Garni Invest, Global  Credit, Kamurj and Nor Horizon. The asset securitization program was  initiated as a test by the FED (Finance for Economic Development)  program, which works as a counterparty to USAID (US Agency for  International Development). After the program was closed and USAID  abandoned plans for institutional support for the development of the  financial market of Armenia.