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FHB-LAND CREDIT & MORTGAGE BANK Ltd.
Váci út 20
H-1132 Budapest
Phone: (36-1) 452-9100
Blue Line: (36-40) 200-115
Fax: (36-1) 452-92-00
Homepage: www.fhb.hu
E-mail: fhb@mail.fhb.hu
About:
THE HISTORY OF FHB
Mortgage lending, in other words the possibility of using mortgage as collateral for long term loans, first emerged in the middle of the 19th century in Hungary. As market production continually increased, there was an ever rising need for long-term financing of land and agriculture. The institutional and capital market structures and instruments of the long-term financing system developed gradually, and efficiently secured financial mediation till the end of the Second World War.
The mortgage lending system was abolished with the nationalization process, and only after the 1990 political transition did the idea of reviving mortgage lending and its institutional system emerge. For this reason, the Földhitelintézeti Alapítvány (Foundation for Agricultural Financing) was established in 1992 on an initiative by the Kereskedelmi és Hitelbank Rt., to prepare the new legislative regulation, to make a feasibility study about the institutional system and its operations, and to make recommendations on the modification of the related laws.
On an initiative by the Minister of Finance, 5 banks established the Jelzálog Hitelintézetet Elokészíto Rt. (Mortgage Bank Preparation Co.) in 1996 with the aim of preparing the establishment and initiating operations of the first bank since World War 2, that dealt solely with mortgage lending and its refinancing by security issuance.
With international financing and technical assistance, the feasibility study on the establishment of a mortgage bank was completed in February, 1997. The parliament passed the Mortgage Law in April, 1997. The Ministry of Finance, and 4 banks, the Magyar Befektetési és Fejlesztési Bank Rt., the Mezobank Rt., the Postabank és Takarékpénztár Rt., and the Pénzintézeti Központ Bank Rt. established the Foldhitel- és Jelzálogank Rt. as the first mortgage credit institution, filling a gap in the Hungarian banking system. The State Financial and Capital Market Supervisory Commission issued the operating permit to the FHB Rt. in March, 1998.
The goal of the establishment of the specialized financial institution was to alleviate the shortage of capital that had been prevailing in so many areas of the Hungarian economy, to introduce long-term financing into Hungary, to provide new, secure investment opportunities for the expected growing volume of long-term savings, and to promote the development of the real estate market.
The function of the mortgage credit institution is to efficiently finance real estate development projects with long earn-back periods and to reinvest the ever increasing volume of long-term savings into the economy. The FHB finances the players (and their aims) in the economy with long-term development loans, for which the needed funds are created by the issue of a new security, the covered mortgage bond (CMB). The owner of a property is presented a new form of financing, thus the capital of businesses tied down in real estate can be reactivated through mortgage lending.
In its first operating year of 1998, the FHB managed to gain a foothold on the Hungarian banking market, developed its strategy and clientele, and secured nationwide accessibility to mortgage loans. It developed a continuously moulding and refining range of products, that are in line with the terms of the capital market and customer needs.
The CMB issues conducted by the FHB have increased significantly year-by-year: a total of HUF 780 million CMBs were issued in 1998, HUF 2.1 billion in 1999, HUF 6.8 billion in 2000, HUF 17.1 billion in 2001, HUF 75 billion in 2002 and HUF 131 billion in 2003, bringing the total amount of outstanding CMBs to HUF 243 billion.
The Bank was awarded "The Best Issuer of the Year for Debentures" title by the Budapest Stock Exchange in Y2001 and Y2002.
The FHB carried out its first € 75 million international debenture issue in July, 2003. The CMBs were floated within the framework of a structured financing scheme. The transaction was later acknowledged by the renowned financial paper Emerging Europe by receiving the title "Best Eastern-European structured issuance".
The Bank's principal owner, the ÁPV Rt. (State Privatization and Holding Co.) solicited an open tender for the privatization of the FHB in September, 1999. In spite of seriously interested candidates, the ÁPV Rt. declared the tender unsuccessful in November, due to the fact that the government intended to assign the FHB a prioritized role in its new housing finance program. The Bank takes active part in the realization of the government's housing subsidy program ever since, and in cooperation with 10 commercial banks, market leading building-societies, 6 insurance companies and almost 100 savings cooperatives contributes to the reduction of the time needed for home ownership and secures inexpensive, long-term funds. The number of retail points is above 1000 locations including those of the partner institutions. By being part (direct and indirect activity) of the residential financing market, the FHB has furthered the competitiveness of this financing market and has brought about a perceptible decrease in interest rates.
Based on the decision of the general meeting of the European Mortgage Federation brought on November 29, 2001, the FHB became an associated member of the organization.
Moody's international rating agency assigned A1 rating to the FHB in September, 2002, which was upgraded to A2 in December, 2002. In October, 2002, Moody's rated the covered mortgage bonds issued by the FHB A1, which is the same classification as given to the national debt of Hungary. In October, 2003, Moody's maintained the FHB's ratings and has assigned the financial strength rating a positive outlook, which makes a later upgrade probable.
In May, 2003, the government made a decision to float the shares of the FHB on the stock market, which was further elaborated on in July: 50 % plus 1 vote would stay in the hands of the state, the rest of the shares would offered for sale by the ÁPV Rt. in the year 2003.
The FHB's profits at end-Q2 were in excess of HUF 1.5 billion.
The FHB's initial public offering was successful. Its shares were floated on the Budapest Stock Exchange at an opening price of HUF 4300.
The FHB int he Hungarian banking sector
If we wish to discuss post World War 2 Hungarian mortgage banking, we must refer to March, 1998, the establishment of the FHB. The markets adoption of the utterly new lending activity and investment opportunity was a slow process.
Two other mortgage banks operate in Hungary at present: the HypoVereinsbank Jelzálogbank Rt., the 2nd mortgage bank to be established in Hungary, focused its initial activities on corporate financing (later progressively shifting towards retail lending); in Y2001, the OTP bank established the 3rd Hungarian mortgage bank.
The mortgage bank is a specialized credit institution in Hungary, whose operations and legislative regulation vastly differs from that of other credit institutions. The most distinctive feature of a mortgage bank is that it may grant credit only on registered mortgage or state surety as collateral. Contrasting the regulation of commercial banks, mortgage banks are entitled and obligated to register the prohibition of alienation and encumberment at the land registry upon the hypothecation of a real estate. Its loan portfolio must consist of mainly long, at least 5 year term loans. The basic stipulation of lending is that any pledged real estate must be negotiable and appraiseable, with ownership rights and deeds to title in order.
The mortgage bank may temporarily retain ownership (for up to 3 years) of pledged real estate (including agricultural land) upon debtor default. The bank may grant credit amounting to maximum 70% of the collateral value (as appraised by the bank) of the real estate. The basis for the appraisal of the collateral value of any real estate is its fair market value, minus its measured risk expressed in monetary terms. (Appraisal principles and techniques are determined by decree 24/1997 (VIII.1.) from the Ministry of Finance, which states the methodology for determining the loan collateral value of non-agricultural land, and decree 54/1997 (VIII.1.) from the Ministry of Agriculture and Rural Development, which states the methodology for determining the collateral value of agricultural land.)
The FHB obtains funds for financing its lending activities by issuing long-term covered mortgage bond (CMB) series'. The safety of this investment is guaranteed first of all by the strict legislative regulation of mortgage banks, by the low-risk credit portfolio behind the issued CMBs, and by the stringent and potent collateralization system. An asset supervisor inspects whether the collateral coverage of the CMB to be issued meets legislative requirements (which is followed by continuous monitoring of coverage). The maturity of the CMBs is typically above 5 years, in line with the maturity of loans granted.
The FHB strives to channel funds obtained through exploiting the inherent advantages of mortgage banks' ability in attaining long-term funds into housing and real estate finance, and to progressively reach the efficiency and profitability levels of international mortgage banks through the rapid, yet prudential expansion of business.
The bank's management is confident that the FHB can continuously increase its market share, and aim at having a 20-25 % share of the housing-finance market in the long term.
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