Mortgage crediting is a new mechanism in Azerbaijan, directed at the resolution of accommodation problems of the citizens. However, within the shortest period interests towards the process enabled to assert firmly the mortgage crediting has future in Azerbaijan. If to accelerate the application of the privileges in the issue of mortgage credits for low-income people and remove labor-intensiveness of the procedures collection of documents for creditors, the mortgage will be in success in our country.
Thus, in March-May 2006 the Azerbaijani Mortgage Fund (AMF) distributed 22 credits worth 448,500 manats among citizens. Only in May the Foundation distributed 12 credits, or 2 times more than in April. In general, since the beginning of distribution of mortgage credits a total of 92 people appealed to benefit this privilege. The cost of apartments purchased was within the frames of 32,624 manats, while average sum of credits - 20,386 manats with the interest rating 11% a year.
AMF has set up the distribution of mortgage credits. Through its agent banks the AMF issued the first mortgage credits in the big cities of the country Guba and Ganja. Today 10 of 15 partner banks of AMF are involved in distribution of loans. Maximal monthly payment on the credits issued made up 280 manats, minimal 95 manats.
However, progress should be encouraged. At present work over the development of mortgage crediting is underway and its concept stipulating the development of initial markets is in process. Meanwhile, the world practice shows that it is necessary establish agent institutes and form secondary market (securitization) and internet-mortgage.
The NBA had meetings and studied the innovations used by the mortgage companies of Kazakhstan, Germany and other countries. "These countries voiced their will participate in the market as players. It testifies that the Azerbaijani market is very attractive in the sphere of construction of apartments as well," the Director of the Credit Organizations Control Department of the NBA, Rufat Aslanly, said.
The essence of the current work is to study fully the domestic market linked with the mortgage, as the mortgage crediting impacts on the general state in economy. Besides, work is carried out the players of the mortgage market, where the banking system, non-banking organizations (in particular, Shore Overseas involved in this field). The players are the insurance companies, which are in charge of insuring risks.
An IFC official` says the impact on the process should be done through non-government way to develop the mortgage market, though some experts do not rule out that the privileges in the first stage of development of the mortgage would be less beneficial. In this respect it is necessary to establish a mechanism in order to take into consideration all interested players. Moreover, the policy that government pursues also plays considerable role in the development of mortgage.
AMF has carried out preliminary talks with the international Finance Corporation, Swiss State Secretariat on Economic Issues (Seco) on delivery of technical assistance for the development of mortgage system of crediting, sign ed a memorandum on mutual cooperation with the intentional organizations ACDI VOCA, sponsored by the US Agency for International Development (USAID).
After the completion of work on technical assistance it is planned to set up a new project envisaging investing for support to the implementation of state program on mortgage crediting. The key peculiarity of the IFC is its involvement in investing in the private sector, in particular, the statutory capital in line with the market rates. The corporation does not accept the governments guarantees and take risks equally with other investors. Therefore, it could set up the implementation of investments as soon as all players of the mortgage market are ready, which could start in 2007-2008.
The most interesting question in this respect is the mortgage crediting for different categories of citizens. Unfortunately, the government is still unable to reach consensus on the issue.
Different bodies still present exclusive proposals. The proposals put forward by the national Bank of Azerbaijan, offer privileges in case of payment of initial fees on credit and terms of crediting. So the public budget might have commitments to every borrower, which complicates the conduct of registration. In accordance with the world practice, the application of privileges on the terms and payment of the initial fees is a regarded as interesting. Inquiry carried out by the AMF on the application of privileges testified that 80% of respondents regarded application of privileges to the initial payment as reasonable.
In particular, so far there is not agreement on the category of people that can claim at privileges, though relevant presidential decree quite clearly outlines them youth and field officers, the Cabinet of Ministers said. The development of privileges was instructed by the presidential decree dated 22 December 2005, which specified the rules for functioning of the Azerbaijani Mortgage Fund.
At present there does not exits consensus neither for character, nor amount of privileges. In particular, they offer apply norms, enabling only the claimants with monthly income of $200 or $300 might appeal for issue of mortgage loan. The banks regard this norm as extremely low. At present the citizens with legal incomes of $800-$1000 a month can be beneficiaries of mortgage credits.
As to interest rates, the President of AMF said that as a result of banking rivalry they will decrease to 8-9% a year. Upon joining of big bank to the process the interests will anew fall. Thus, the mortgage credits will be available for larger layers of population.
The bankers acknowledge that in condition of strict rivalry for clients the market is awaiting the limit of mortgage portfolio. However, the analysts beware of mass softening of terms of crediting will entail further rise in prices of apartments.