Prospects of Securitization of Mortgage Assets in Armenia
Media Room

Interview of Vazrik Sekoyan, Deputy General Director of Armipexbank

Securitization of assets is one of the discoveries of the XX century world economy. Although this phenomenon is considerably not new (1977), it is rather prospective for the securities market, including countries with transition economy. In Armenia, the idea of securitization, in particular, securitization of mortgage assets already “wanders in the air”: however, the market is not quite ready for such serious steps, due to the lack of appropriate legislative field. Nevertheless, the Central Bank has already initiated drafting of the concept of asset securitization, which will allow banks to bring freely their bonds to the market. About the current market situation and the prospects of its development talked the Deputy Executive Director of “Armimpexbank” Vazrik Sekoyan with the correspondent of “ArmInfo”. 


- Mr. Sekoyan, what is the necessity of securitization of assets (namely, mortgage assets) in Armenia, and what problems should be addressed?

- The necessity or the desirability of securitization, as an operational category, is that similar transactions, as a rule, address a number of questions of the barest necessity. The most important among them are creation of long money, control over liquidity, increase of attractiveness and improvement of conditions for such asset that will be securitized. Securitization of mortgage assets, among other things, includes a social aspect, where along with the development of the mortgage sector, it allows to address issues of availability of loans and ensuring housing for population. To cap it all, large-scale securitization transactions may be viewed as a corner stone of securities market building and development in Armenia, which is a rather pressing and important task. Nevertheless, to ensure successful securitization in practice, it is necessary to solve a number of problems forming a real vicious circle. I cannot help emphasizing in the first place the importance of introducing, on legislative level, stimulations for all market participants, which will permit to encourage the process and accumulate critical mass of base assets required for successful implementation of securitization projects.
Among other problems, it is necessary to emphasis availability of yet not large mortgage portfolios, lack of regulatory support, and underdevelopment of capital markets, inadequate interest rate system, and lack of relevant experience. The securitization is a rather non-standard product requiring a similar non-standard approach.  Since Armenia itself is a country of unique opportunities, I think that with regard to solving of non-standards problems we can succeed in accomplishing those tasks. The main thing is that everyone sticks to its business: consultants – theirs, participants – theirs, the regulator- its; at that, everyone must have a positive attitude. Once a single example of securitization is recorded, I assure that the pace of the process will grow by geometric progression. 

- Please introduce the main types of securitization. Which one of them is more attractive for the Armenian banking system?

- In theory, there are three main types of securitization: however, many financial processes have conceptually similar forms. As a rule, “securitization” implies classical scheme of selling balance sheet assets by one organization to another, quite often under a project specially developed for that purpose. The sale is financed by a special organization established by investors, which enjoys all benefits of owning the particular assets. At that, the selling party receives cash equivalent of the value of sold assets, and may continue its main business, for example, provide mortgage loans. However, for this type of securitization, the legislative field of Armenia is not in place yet, and its practical application is associated with a number of limitations.
Attraction of resources backed by balance sheet assets (in our case – outstanding loans) is another form of securitization, which is more prospective direction as of today. Alternative to this, the organization may transfer to the balance of a specially established organization not the asset itself, but the cash flows associated therewith. In our practice, both acting in and outside the group, we dealt with transactions, the execution of which required addressing of issues in many respects similar to those of securitization. At present, Armimpexbank conducts negotiations with several companies, where securitization is considered in this or that form. However, everything depends on the situation, just like anything in an investment bank.

- The attempt to establish a Mortgage Fund ended in a fiasco: in 2006, the National Assembly of the RA rejected the CBA’s initiative. As a result, mortgage securities will be issued by companies and banks themselves. How effective will this way be?

- The CBA’s initiative was an attempt to encourage development of the sector, through a large-scale step of creating a quasi-public fund, and simultaneously, to solve a set of problems mentioned above. That was an effective alternative to the gradual development, which will take years and is associated with many factors, solving of which will be difficult, when addressed by individual small- and medium-scale organizations.
As to how effective this way will be, it depends on capacities of organizations involved in the process. Nevertheless, it should be mentioned that we see there additional opportunities for the bank, acting as a professional financial market participant, since the failure connected with the mortgage fund puts forward the necessity to solve a number of problems independently, which requires significant professional competence.

- When are the first transactions in securitization of mortgage assets expected?

- It is difficult to give a straightforward answer, yet, the processes in this field progress rather fast and, perhaps this year we will become witnesses of first securitization projects in this or that format.

- How will the situation in the international mortgage market affect Armenia?

- It is already affecting. Adjustment was expected long ago, and that is happening in the real estate market now. However, in the long-term prospective, tendencies are directed at the growth, both for mortgage and securities.

- Tell us please, what interest rates will Armimpexbank offer on mortgage loans, and on what terms will securitization of those assets occur?

- At present, mortgage loan terms and conditions are in the process of being approved, and preliminarily I may say that interest rates offered by us will be lower than market rates. In addition, I would like to state that we plan to provide loans with up to 20 years of repayment term, and prepayment of 15% of the value of to-be-purchased real estate. Currently, hardly a few banks offer loans for the purchase of apartment (house) on such terms. As to the plans of Armimpexbank concerning securitization of mortgage credits, works in this direction are in progress and I can’t talk about it yet.

- Thank you for the interview.

The interview was conducted by Lilit Aslanyan, ArmInfo, 25.02.08

Updated 25.07.2009, 11:22
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