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UCB Approach to New Markets

UCB Approach to New Markets. World Bank Group Housing Finance Conference Washington DC March 15-17, 2006. Jean-Christophe Steven. Contents. UCB Presentation Building new markets Today’s new (emerging) markets… … An opportunity for UCB Two case studies: Turkey and Morocco

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UCB Approach to New Markets

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  1. UCBApproach to New Markets World Bank Group Housing Finance Conference Washington DC March 15-17, 2006 Jean-Christophe Steven

  2. Contents • UCB Presentation • Building new markets • Today’s new (emerging) markets… • … An opportunity for UCB • Two case studies: Turkey and Morocco • Challenges UCB faces • Conclusions

  3. 1. UCB Presentation

  4. A Housing Finance Specialist • Founded in the 1951 post-WW2 France under reconstruction… • …to help the process by financingmain, secondary or investment residences, UCB is a… • …wholly-owned subsidiary of the BNP Paribas Group and the Housing Finance business line flagship of BNP Paribas International Retail Financial Services • UCB markets its products B2B through a network of business referral partners (e.g. Brokers, Realtors, Construction Companies and Property Developers)

  5. International development • UCB is the only French Housing Finance specialist with an international network, incepted in 1986... • …and presently comprising 8 unitsin France, Spain, Italy, Portugal, Greece, Norway, the Netherlands and Belgium • We open UCB Switzerland in June 06 and 5 other projects are taking us, inter alia, to Turkey and Morocco .

  6. Global Data Bank • 55,000 new customers per year • Euro 10.8 Bn new loans in 2005 (+34.1% over 04) • As at Dec 2005, Euro 27.8 Bn loans outstanding (+23.6% over 04) • 2 500 employees

  7. 2. Building new markets

  8. 3 Development Phases • 1951: France as a country under reconstruction • French State sponsored market organisation • Dominant State-owned players • Subsequent gradual liberalization • 1989: France as a fully liberalized country in an integrating Europe. • UCB internationalizes itself, with low growth at home • 1989: preparation for first subsidiary in Spain… • …followed by Italy (1989), Portugal (1999), etc, etc. • 2002: France in the Global Economy • Core European network consolidation (The Netherlands, Norway, Greece, Belgium, Switzerland and Germany) • … with assessment of emerging markets in Eastern Europe and the South Med.

  9. Methodology of expansion • No preset roll-out model: • Draw on past experiences to adapt to new places • Strongly support new businesses • Operational autonomy of mature subsidiaries • Cross-fertilisation between UCB businesses wherever beneficial (IT, marketing, process) • Leverage on BNP Paribas Group international presence • Models toolkit: • Northern Europe Model (Brokers referrals) • Southern Europe Model (Realtors referrals) • Post-war France Model (Construction Companies referral) • Achieve a realistic and sustainable local market share depending on market dynamics (Do not overreach)

  10. New markets features (1) • Macroeconomic Imbalances… • Currency volatility challenges foreign investors • High Interest rates • Limited primary liquidity and almost no secondary • Significant budget deficit ratios … require Multilateral Financial Institutions to assist in addressing the situation with suggestions for: • More flexible exchange rate regimes • New practices in financial markets • New frameworks, laws and regulations • Monetary policies and inflation targeting • …and to look for the contribution of Housing Finance specialists

  11. New markets features (2) • Socioeconomic Imbalances such as • Dwellings deficits • Qualitative in Eastern Europe • Quantitative and Qualitative in the South Med Rim • Housing Loans Limitations • Housing Loans with shorter term • Limited Loan Products range • Low mortgage debt ratio: between 1% and 15% (1% in Turkey, 4% in Poland, 8% in Morocco, 11% in Jordan, 12% in China) • Strong demographic growth and a very young population • Fast paced and recent urbanization, at the expense of space control (Currently 40% of less developed countries residents live in urban areas. It is expected that 60% of the world population will be urban by 2030, and that most urban growth will occur in less developed countries.)

  12. 3. Today’s new (emerging) markets…

  13. UCB Three Criteria Model (1) We regularly run a model blending about 200 indicators to track: • Attractiveness, with respect to: • size • profitability • growth • Accessibility in terms of: • refinancing • costs of starting up • synergies with the BNP Paribas Group • competitive environment • specificities of the country • Risks, the cornerstone assessment of : • regulatory risk • solvency risk • market risk • country risk

  14. UCB Three Criteria Model (2) • In-depth Reviews and Country Committees ensue … • …To sort countries, as per today’s data, according to 4 categories: • Priority countries • Accessible countries • Attractive countries • Country to further assess • Dynamic forecasts are also run to envisage future trends: • And this process can change countries status

  15. UCB Three Criteria Model (3) • Our housing finance model is overall providing positive views for emerging markets. Worth of note: • Hungary: • A slowing down of the loans growth, albeit at a high level (30 % a year vs 80 % over 2000-2004 period) • Stable margins at high level • Development of refinancing by mortgage bonds (mainly covered bonds) • Russia: • Very strong loans growth (about 85 % a year between 2000 and 2004)… • …supported by the Government that should implement in 2006 a support package for our industry

  16. UCB Three Criteria Model (4) • Algeria • A relatively small market compared to its neighbours (Morocco, Egypt, Tunisia) but a very important potential. • Improvement of market conditions: new banking law (2005), computerization of land registries, mortgage finance trainings for the main market players. • India • Growth of outstanding loans remains at a high level (40 % a year between 2000 and 2004, outstanding as at 2004 : US$ 26 Bn) • A favourable legal environment • Decrease in interest rates (from 15% in 1999 to 9% in 2005)

  17. 4. An opportunity for UCB

  18. Why we have to be there? • Important structural reforms happen now in many emerging markets: • We can provide to local regulators our views on practical solutions for issues encountered in many different countries • We want to share with local partners best practices and skills • Win-win strategy locally • Gradual integration strategy globally • Also, risks being higher we can enjoy: • Higher margins and… • Synergies with the International Retail Banking and Financial Services core business lines of BNP Paribas

  19. Optimism about the future • Given its linkages to land, construction, and labour markets, housing finance is key to economic growth and at the forefront of Governmental Policies and Planning everywhere. • Mortgage markets have grown at very strong annual rates and construction activity is booming with no signs of crash landing • Emerging countries offer significant opportunities for the following reasons: • Falling interest rates, tax incentives and healthy property prices have increased the affordability of housing loans and the desire to be part of the virtuous circle. • Increasing incomes will lead to increased demand for housing finance in urban areas. • Rapid economic growth has led to urbanisation causing the demand for housing to soar.

  20. How to enter these markets? • Carefully review conclusions of our internal Three Criteria Model : Turkey and Morocco stood out as desirable countries. • Respond to BNP Paribas local partners’ requests for UCB presence, TEB in Turkey and BMCI in Morocco, to provide our intermediaries marketing expertise. • Take strategic decisions about what categories of intermediaries to market. • Meet representatives of the chosen target intermediaries in all key cities

  21. Turkey (1) • A young and dynamic population of over 70 million, 65% less than 30 years old • A fast developing country with an average growth rate of 7.5% per year in 2002-2004 • A macroeconomic stabilization with a virtuous circle of: • Lowering inflation expectation (7,9% in 2005) • And falling real interest rates (≈ 14%) • Many Banks push into mortgage finance • Most middle and low income families cannot benefit from housing loans because they are still too costly

  22. Turkey (2) • The developing strategic shareholding pact with TEB provides UCB with a gateway into one of the largest countries in Europe population-wise… • … at a time when Turkey has just embarked in a convergence scenario with the EU supported by strong performance in terms of growth, inflation and interest rates. • Moreover a new « Housing Finance System » law will, within months, accelerate the expansion of a mortgage financing market currently taking off briskly.

  23. Morocco (1) • Macroeconomic stability with • Low inflation: average 1,5% for the period 1999-2004 • The external current account has been in surplus since 2001 • Growth: 5,5% in 2003 and 4,2% in 2004 • Important lack of housing units • In 2005, the deficit is stable at 1 240 000 dwellings • Underdeveloped Realtors sector • A dynamic housing loans sector • Decrease in interest rates (from 12,5% to 7,5%) • Housing loans outstanding reached 8% of GDP in 2004 against 3% in 1995 • With a 25% growth in outstanding in 2005 (5,4 Bn euros), the market is already in a booming trend. But the potential of development remains important, since only 20% of the population is holding a bank account.

  24. Morocco (2) • UCB approaches Morocco as a springboard for the Maghreb, a region comparable to Turkey population-wise. • Due to its economic stability (controlled inflation, low interest rates) and its tight links with Europe… • … Morocco is a neighbour country with good mortgage finance potential… • …through a construction companies/ developers referrals marketing strategy.

  25. Difficulties in emerging countries: challenges UCB has to face (1) • Underdeveloped financial systems • Lack of long term debts instruments and other funding issues • Securitization of mortgages proves difficult • A still unstable legal environment • Land tenure, property rights and the legal process can be significant impediments

  26. Difficulties in emerging countries: challenges UCB has to face (2) • A limited access to housing finance • Inadequate supply of trained professionals • New products framework difficulties (PEL in Morocco) • Maturity of loans is often too short • Lack of sound information on the actual exposure of individuals to debt • Crisis triggers and early warning indicators • Economic crisis: unemployment, lower housing values, external shock • Delays in coming up with new prudential lending standards and regulations • Ineffective foreclosure (delays, appeals, adverse judiciary) • Late payment and default statistics

  27. Conclusions • The current period appears to be a historic high point in the Housing Finance industry history • UCB and its parent, BNP Paribas, recognize the many opportunities offered by these conditions and… • …will make increasingly available its expertise and financial capacity to our industry…. • …especially in the Emerging Markets. Thank You For You Attention

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