Mortgage Refinancing Market Creating The Right Environment To Make Refinancing The Mortgage Portfolio A Reality

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1 Mortgage Refinancing Market Creating The Right Environment To Make Refinancing The Mortgage Portfolio A Reality Martin Macko Head of Treasury Division UniBanka, a.s. Bratislava UniCredit Group

2 Contents Competition On Mortgage Market How To Manage The Mortgage Boom Benefits Of Having A Developed Market Mortgage Refinancing Opportunities On Local Market Establishing Flexible And Workable Mortgage Products Relation Between Primary And Secondary Market

Refinancing Opportunities On Local Market Establishing Flexible

3 Competition On Slovak Mortgage Market Mortgage Bank 2005 Market Share 2004 Market Share Slovenská sporite a 28,7 % 22,1 % VÚB 27,1 % 28,2 % Tatra banka 18,6 % 21,8 % OTP Banka 7,8 % 8,8 % Istrobanka 5,5 % 6,0 % 3,5 % 3,5 % 2,9 % 3,3 % 2,1 % 2,4 % HVB Bank 1,9 % 2,6 % Dexia banka 1,8 % 1,2 % SOB UniBanka udova Banka Source: Trend

% OTP Banka 7,8 % 8,8 % Istrobanka 5,5 % 6,0 % 3,5 % 3,5 % 2,9 % 3,3 % 2,1 % 2,4 %

4 Competition On Slovak Mortgage Market First Mortgage license was approved by Slovak central bank in June 1997 (VUB that time state-owned) At present, 10 banks are providing customers with mortgage loans Competition is very strong mortgage banking belongs to most attractive business for banks, as there is supposed relative low level of credit risk There was a significant increase of mortgage loans during recent periods (especially )

very strong mortgage banking belongs to most attractive business for banks, as there is supposed relative low

5 Mortgage Boom in Slovakia Volume of provided mortgage loans in Slovak Republic (mil. SKK) Source: NBS

SKK) 70000 60000 50000 40000 30000 20000 10000

6 Mortgage Boom in Czech Repubic Volume of provided mortgage loans in Czech Republic (mld. CZK) Source: NBS

CZK) 200 180 160 140 120 100 80 60 40 20 0

7 How To Manage The Mortgage Boom Slovak central bank (NBS) introduced regulation for mortgage business: 90% of drawn mortgage loans are to be refinanced by mortgage bonds Volume of issued mortgage bonds cannot exceed the volume of drawn mortgage loans by more than 10% Commercial banks introduced a lot of new mortgage loans products Structure of mortgage loans can influence future development of some other markets (e.g. real estate market, interest rates)

volume of drawn mortgage loans by more than 10% Commercial banks introduced a lot of new mortgage loans products

8 Benefits Of Having A Developed Market There is still enough room for developing mortgage market in CEE Tough regulation is not necessary on developed market, which has more autoregulative characteristics Future development will be influenced by type of provided mortgage loans (fix/float rates, tenors, etc...) Country Mortgage loans/gdp Slovakia 4% Czech Republic 6,2% Hungary 8% Poland 5% CEE average 5% Euro Area 37% Source: Unicredit Group

development will be influenced by type of provided mortgage loans (fix/float rates, tenors, etc.

9 Benefits Of Having A Developed Market CAGR= Compound Average Growth Rate Benefits for providers Standardized processes by providing mortgage loans Better funding possibilities Source: Unicredit Group Benefits for consumers More convenience (flexible products, competitive conditions, possibility to change provider)

Better funding possibilities Source: Unicredit Group Benefits for consumers

10 Mortgage Refinancing Opportunities On Local Market First mortgage bonds issue in Slovakia: VUB, January1999, face value 100 mil. SKK, maturity 5Y Today, there are sold 61 issues, in the total face value of SKK 43 bln. Typical characteristic is maturity 5 10 Y, fixed coupon Mortgage loans SKK (thousands) Total amount of outstanding principals of ML Total face value of issued mortgage bonds (MB) Number of issues of MB Total face value of sold MB Total face value of sold MB to total amount of outstanding principals of ML ratio (in per cents) Source: NBS ,61 64,24 71,54 74, ,65 76,52

issues, in the total face value of SKK 43 bln. Typical characteristic is maturity 5 10 Y, fixed coupon Mortgage loans SKK (thousands) 31.1.2004 30.6.

11 Mortgage Refinancing Opportunities On Local Market There are strict rules how to refinance mortgage loans in Slovakia the only possibility are mortgage bonds There is still demand for mortgage bonds, usually by pension funds, life insurances and conservative mutual funds Some banks are considering to offer mortgage bonds to retail investors To avoid the complicated refinancing duty, commercial banks are developing consumer loans for construction, which can be refinanced from other recourses than mortgage bonds.

conservative mutual funds Some banks are considering to offer mortgage bonds to retail investors To avoid the complicated

12 Establishing Flexible And Workable Mortgage Products In Slovak banks offered just basic mortgage loans, based on fixed rate, which was defined and changeable by banks Growing competition pushed providers to increase quality of mortgage products portfolio. This situation is in place also today banks are introducing many new and flexible mortgage products, which are more convenient for customers. Typical components adjusting mortgage loans are variable instalments schedule, variable rates, combination with consumer loans to cover 100% of real estate etc.

This situation is in place also today banks are introducing many new and flexible mortgage products, which are more convenient for customers.

13 Establishing Flexible And Workable Mortgage Products Mortgage with adjustable instalments Customer can agree with the bank irregular instalments of principal Transparent Mortgage Mortgage loan interest rate is based on official SKK reference rates BRIBOR 100% coverage of real-estate purchase Loan covers whole purchase price of customers real-estate (usually a combination with consumer loan) American Mortgage Customer can use the loan backed by real estate for different purposes (not only real estate purchase) Mortgage denominated in EUR Local customer bear a FX risk, but usually pays less on interest rates Reduction of administration Bank doesn't check purchase contracts of the customer

real-estate (usually a combination with consumer loan) American Mortgage Customer can use the loan backed by real estate for different purposes (not only real estate

14 Relation Between Primary And Secondary Market secondary market Secondary market of Slovak mortgage bonds is very small, as the investors are usually holding mortgage bonds to maturity. At present, there are issued mortgage bonds of total face value 45 bln. SKK, but on secondary market were during last 12 months executed deals only in the amount of SKK 1,5 bln. liquidity on secondary mortgage bonds market is extremely low. primary market Primary & Secondary Mortgage Bonds Market In Slovakia (Q205 - Q106), SKK bln.

At present, there are issued mortgage bonds of total face value 45 bln.

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