Funding MeasuresFunding MeasuresCMB Issuance in HungaryCMB Issuance in Hungary

Presentation byPresentation by

Rita Mayer, DirectorRita Mayer, Director

FHB Land Credit and Mortgage BankFHB Land Credit and Mortgage Bank

5 December 2002 5 December 2002

ContentContent

• I. Introduction

• II. Mortgage Banking in Hungary

• III. The Hungarian Mortgage Bond Market

• IV. FHB’s Funding Strategy

• V. CMBs Issued by FHB

• VI. Current Barriers

• VII. Future funding strategy

Home ownership rates across EuropeHome ownership rates across Europe

28

40

46

54

59

60

67

68

72

80

82

95

Switzerland

Germany

Netherlands

France

Portugal

Denmark

United Kingdom

Italy

Belgium

Spain

Ireland

Hungary

Mortgage loans

Mortgage loans

/ GD

P%

/ GD

P%

0 10 20 30 40 50 60 70Hungary

Greece

Italy

France

Belgium

Spain

Portugal

Ireland

Finnland

Austria

EU average

Germany

Sweden

United Kingdom

Netherland

Denmark

II. Mortgage Banking in HungaryII. Mortgage Banking in Hungary-- LegislationLegislation

Special law on mortgage banking: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• specialist principal (Mortgage Bank as issuer)• subject to special supervision (additional coverage supervisor)• priority status for CMB holders

•• Modification of mortgage legislation 2001Modification of mortgage legislation 2001– enhancing cooperation between mortgage banks and

commercial banks (purchase of independent lien)

II. Mortgage Banking in HungaryII. Mortgage Banking in Hungary-- Bond Market StructureBond Market Structure

(brake down by issuer types)(brake down by issuer types)

Total Capitalisation: HUF 5,32 trillion(BN EUR 21,28)as of 31.12.2001

67%

1%

1%

0%

4%

19%

8%

Government Bonds

Corporat(including Bank) BondsCompensation Notes

Mortgage bonds

HUF Eurobonds

T-billsNBH 3M Bonds

III. The Hungarian Mortgage Bond MarketIII. The Hungarian Mortgage Bond Market

Institutional setInstitutional set--up:up: three operating mortgage banks-- FHBFHB (1998) - “stand alone” institution - 100% state owned

• main focus on residential mortgage• fully state owned

• private and public placements– HVB (1999) - member of a banking group

• predominantly commercial mortgage• private• private and public placements

– OTP Mortgage Bank (2002) - member of a banking group• mixed loan portfolio• 100 % owned by OTP Bank (The biggest Hungarian commercial bank)• so far only private placements

III.The Hungarian Mortgage Bond MarketIII.The Hungarian Mortgage Bond Market

Total outstanding volume of CMBs as of Nov. 2002:

M EUR 503,8

• o/w: FHB M EUR 333

• HVB M EUR 30,4

• OTP M EUR 140,4

After Govies CMBs represent the2nd biggest asset class of fixedincome instruments in Hungary !

Market share of outstanding CMBs 11. 2002

OTP28% FHB

66%

HVB6%

IV. FHB`s Funding StrategyIV. FHB`s Funding Strategy

•• 19981998--2000: Starting period 2000: Starting period -- Relying on private Relying on private placementsplacements– average size: 0,5-1,5 BN HUF(2-6 M EUR), 11 closed series,– average spread: T + 70-100 b.p.

•• 2001: Shift to public offerings2001: Shift to public offerings-the reason: focus on residential mortgage lending (3-7% gov. subsidy for CMB

funded residential loans with a cap on mortgage loan rate)-the aim : greater transparency and higher liquidity– average size:7-20 BN HUF (30-80 M EUR)/series, monthly twin auctions

with 1,5-2 fold oversubscription, tap issues, growing auction volumes– average spread: T + 80-100 b.p.

IV. FHB`s Funding StrategyIV. FHB`s Funding Strategy

•• 2002: 2 Domestic Bond Issuance Program2002: 2 Domestic Bond Issuance Program– government subsidy up to 10%– amendment to the mortgage law - independent lien

purchase– refinancing agreement with 8 commercial banks - more

than 50% of newly originated mortgage loans is refinanced through FHB

•• Distribution:Distribution:– selling and price quoting consortium (7 ”PD-s”)

V.V. CMBsCMBs Issued by FHBIssued by FHB-- as to the year of issuance as to the year of issuance --

Total volume issued in M EUR 333 (in M HUF 83.144)

as to 11.11.200283

27

69226

1998 1999 2000 2001 2002

V.V. CMBsCMBs Issued by FHBIssued by FHB-- total outstanding total outstanding CMBsCMBs --

1 3 1027

83

146

-101030507090

110130150

BN

HUF

1998 1999 2000 2001 2002E 2003F

3 12 36110

332

584

1998 1999 2000 2001 2002E 2003F

M EUR

V.V. CMBsCMBs Issued by FHBIssued by FHB-- new issues new issues --

174

54

15

3

3

52

14

12

0

5

0 50 100 150 200 250

1998

1999

2000

2001

2002

M EUR

Year

FixedFRN

V.V. CMBsCMBs Issued by FHBIssued by FHB-- maturiy maturiy profile at the issuance profile at the issuance --

012

83 95

32 21

90

0

10

20

30

40

50

60

70

80

90

100M EUR

0-5 5 5-6 6 6-7 7 above 7

Maturity (year)

V.V. CMBsCMBs Issued by FHBIssued by FHB-- private placements and public offeringsprivate placements and public offerings--

3

0

8

0

27

0

8

60

0

226

0

50

100

150

200

250

M EUR

1998 1999 2000 2001 2002

new issues

Private placements Public offerings

V.V. CMBsCMBs Issued by FHBIssued by FHB-- major investors major investors -- public offerings public offerings --

Total amount issued in M EUR 333 ( in M HUF 83.144)1998.12.01 - 2002.11.11

Banks14%

Other (Investment

Service Providers)

11%

Insurance Companies

14%

Pension funds20%

Investment funds32%

Mutual Savings Co-operatives

0%

Foreign Investors8%

Retail1%

Amount of listed Amount of listed CMBs CMBs by FHB by FHB on the Budapest Stock Exchangeon the Budapest Stock Exchange

0,0

50,0

100,0

150,0

200,0

250,0

300,0

2001

Mar

ch

2001

Jul

y

2001

Sep

t

2001

Nov

2002

Jan

2002

Mar

ch

2002

May

2002

Jul

y

2002

Sep

t

2002

Nov

Date

M EUR

V.V. CMBs Issued by CMBs Issued by FHBFHB-- private placements private placements (M EUR)(M EUR)--

Serie Date of issue Maturity (years)

Amount Coupon %

FJ03AA01 98.12.01 5,0 3,12 15,50%FJ06ZF01 99.07.02 7,0 3,20 12,80%FJ06ZV01 99.07.02 7,0 4,96 10,30%FJ07ZF01 00.02.25 7,0 4,00 9,70%FJ07ZV01 00.02.25 7,0 2,00 9,00%FJ08ZV01 00.07.13 7,5 4,00 10,00%

FJ05ZF01 00.09.19 5,0 6,04 9,70%

FJ07ZV02 00.10.25 7,0 5,68 10,30%

FJ06ZF02 00.11.28 5,3 4,60 11,10%FJ07ZV03 00.11.28 7,0 0,40 10,70%FJ06ZF03 01.01.30 5,0 3,00 9,70%FJ08ZV02 01.01.30 7,0 1,04 9,50%FJ11ZV01 01.05.15 10,0 4,32 9,30%

V.V. CMBs Issued byCMBs Issued by FHBFHB-- public offeringspublic offerings (M EUR)(M EUR)--

Serie Date of issue Maturity (years)

Amount Coupon %

FJ07NF01 01.03.14 6,0 25,22 9,6

FJ09NV01 01.09.06 8,0 18,96 10,4

FJ07NF02 01.10.08 6,0 32,00 9,5

FJ08NF01 02.02.11 6,0 37,60 8,25

FJ12NV01 02.03.11 10,0 42,44 9,25

FJ09NF01 02.08.12 6,4 32,00 9,25

FJ13NF01 02.09.09 10,3 20,00 8,5

FJ08NF02 02.10.14 5,4 38,00 9,5

FJ08NF03 02.11.11 5,4 40,00 9,25

VI. Current barriersVI. Current barriers

•• Steady growth of mortgage lending Steady growth of mortgage lending -- refinancing refinancing profile of FHB is strengtheningprofile of FHB is strengthening– FHB total assets grew by 74% in 2001

• Estimated growth in 2002: 95%• 21,8% of total assets comes from independent

lien purchase•• Narrow domestic institutional investor baseNarrow domestic institutional investor base

– slower increase of the domestic institutional investor portfolio

– reluctance to diversify fixed income portfolio (overweight of govies)

– investment limits (internal limits for one issuer, for one serie etc.)

VII. Future funding strategyVII. Future funding strategy

•• Priorities: Priorities: – expanding the investor base– further improving liquidity– lengthening the maturity profile (10Yr fix)– other technical changes

•• Tools to achieve these goals:Tools to achieve these goals:– international credit rating by Moody’s

•• FHB bank rating : A3FHB bank rating : A3•• FHB HUF denominated CMB series: A1FHB HUF denominated CMB series: A1

– setting up an EUR 1000M EMTN program– entering Euro market, timing: Q1 2003