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FHB - Potential Newcomer at Euro CMB Markets

FHB - Potential Newcomer at Euro CMB Markets. Presentation by FHB Land Credit and Mortgage Bank June 2002. Contents. Mortgage banking in Hungary FHB - financial highlights FHB and its DCM activity. Mortgage Banking in Hungary I. Institutional set-up : three operating mortgage banks

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FHB - Potential Newcomer at Euro CMB Markets

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  1. FHB - Potential Newcomer at Euro CMB Markets Presentation by FHB Land Credit and Mortgage Bank June 2002

  2. Contents • Mortgage banking in Hungary • FHB - financial highlights • FHB and its DCM activity

  3. Mortgage Banking in Hungary I. Institutional set-up: three operating mortgage banks • FHB (1998) • main focus on residential mortgage • fully state owned • HVB (1999) • predominantly commercial mortgage • private • OTP Mortgage Bank (2002) • mixed loan portfolio • 100 % owned by OTP Bank (The biggest Hungarian bank)

  4. Mortgage Banking in Hungary II. Legislative framework • Special law on mortgage banking: Act XXX. 1997 • basis: German model (strict ratios - 60% LTV) • CMB-s: fully compliant with relevant EU UCITS directive for covered securities • credit institution (Mortgage Bank) as issuer • subject to special supervision (additional coverage supervisor) • priority status for CMB holders • Modification of mortgage legislation 2001 • enhancing cooperation between mortgage banks and commercial banks (purchase of independent lien) REFINANCING!

  5. FHB Financial highlights(as of 31 December 2001)

  6. Profit & Loss Accounts 1998-2003 • Break-even: loan portfolio about 30 BN HUF (130m Euro) • Turnaround to positive cash-flow: November 2001 • First 5 months 2002: confirmation of the trend

  7. FHB`s Lending Strategy Asset portfolio: • 93 % residential loan • geographically well diversified • high quality (over 96% current and performing) • over collateralized (280%) • Average maturity: 11 years • Average size:4 MHUF (15.000 EUR) • Multilevel distribution (loan placement) channels • Insurance agents • Commercial banks ( refinancing)

  8. FHB`s Lending Strategy

  9. FHB`s Funding Strategy • 1998-2001: Relying on private placements • average size: 0,5-1,5 BN HUF(2-6 M EUR), 13 closed series, • average spread: T + 70-100 b.p. • 2001: Shift to public offerings • the aim greater transparency and higher liquidity • average size:7-20 BN HUF (30-80 M EUR)/series, monthly twin auctions, 2-3 fold over subscription, • average spread: T + 55-80 b.p. • 2 series (6yr fix) closed, 3 series open • Distribution: • shift from subscription to calendar type free auctioning • selling and price quoting consortium(7 ”PD-s”)

  10. FHB`s Funding Strategy II.

  11. Challenges ahead • Steady growth of mortgage lending • FHB total assets grew by 74% in 2001 • Estimated growth in 2002:95% • Narrow domestic institutional investor base • total assets of ”QIB”-s: 2000 BN HUF (8 BN EUR) (only 13% of GDP) • reluctance to diversify fixed income portfolio (funding potential/mortgage bank/year: 30-35 BN HUF) • Other investors (retail and banks): limited interest (15 BN HUF)

  12. Future funding strategy • Priorities: • expanding the investor base • further improving liquidity • Tools to achieve these goals: • obtaining international credit rating (due diligence starts in July) • setting up an EMTN program(EuroHUF, EUR) • entering Euro market

  13. Conclusion Why to purchase FHB’s CMB issues? • Diversification of convergence credit portfolio • Yield pick-up over the Hungarian sovereign • Safe long term investment

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