PRESENTATION Strategy for Developing Housing Finance In Southeast Europe Fin Media Conference April 1, 2003 Ana Maria Mihaescu – Chief of Mission International Finance Corporation

Who is IFC  Established in 1956, largest multilateral source of loan and equity financing for developing member countries  Private sector arm of the World Bank  175 member countries (1991, year Romania became member)  Authorized capital of US$ 2.45 billion  Board of Governors (corporate powers), Board of Directors (approves all projects)

Role Of IFC Promotes sustainable private sector investment in developing countries to reduce poverty and improve people ’ s lives by:  Financing private sector projects  Helping private companies in the developing world mobilize financing in local and international financial markets  Providing advice and technical assistance to businesses and governments

Impact of IFC  Since inception has committed US$34 billion for own portfolio and US$ 21 billion for syndications (in Romania over $580 million including syndications)  As of June 2002 own portfolio is US$ 15.1 billion as follows: -Loans - $10.6 bn (71%) -Equity - $3.5 bn (23%) -Guarantees - $794 mn (5%) -Risk Management - $172 mn( 1%) disbursed and out-

Products of Financial Markets BANKING HOUSING FINANCE INSURANCE MICRO FINANCE- SME Other Products: Bond/Security Market Development Corporate Governance/Money Laundering Technical Assistance

Which Way to Go No one model or “right answer” Well-thought out plan between government and private participants

Current Housing Finance Projects Secondary Market Institutions Primary Market Institutions On-LendingCapital Market or Structured Finance  Argentina – BACS  Colombia – Hitos  Korea – KoMoCo  West Bank/Gaza – PMHC  Caribbean - ECHMB  Argentina - BHN  Bangladesh – Delta BRAC  China – Advantage China  India – HDFC, Sundarem, TATA  Korea – NewState Capita  Mexico –Su Casita  Morocco - CIH  Pakistan – IHFL  Senegal – BHS  South Africa – South Africa Home Loans (SAHL)  Sri Lanka – NDB  Bulgaria – BACB  Baltic States – BalAEF  Croatia – ERSTE Bank  Estonia – Eesti Uhispank  Russia – Delta Credit  Lebanon – Librano Francaise, Bylblos Bank, Fransabank, BBAC  Brazil – MSF Holdings  Colombia - Hitos  India – NIIT and NHB, , Korea -SOGEKO, KoMoCo, KDLC  Mexico – Su Casita  South Africa – Kiwane and SAHL  Turkey-Garanti Leasing Where have we helped?

New Projects Projects in Process in Region Poland – PolieSec Romania - RoFin Potential Projects in Region Mortgage Insurance Company Credit Bureau Company Mortgage-backed Bonds/Securities Construction financing

Catalytic Role Of Housing Finance SOCIAL STABILITY:  Enables households to purchase an asset which will represent their largest single investment.  Personal residences account for % of household wealth worldwide, which amounts to 3 to 6 times their annual income.  Housing represents 40% of the monthly expenditure of households worldwide. There is no dispute that housing finance and capital markets have tremendous development impact GLOBALLY.

ECONOMIC DEVELOPMENT:  Investment in housing accounts for 15-35% of aggregate investment worldwide.  Housing finance supports a successful economic sector, and frees personal savings which can be invested in small businesses.  Residential construction accounts for 5% of labor force worldwide, while real estate services (including finance) constitutes 4% of labor force worldwide. There are a number of forward and backward linkages Catalytic Role Of Housing Finance

OVERVIEW OF HOUSING FINANCE BUILDING BLOCKS OF SUCCESSFUL SYSTEM

DEVELOPMENT OF SM  The most critical factors to support the viability and sustainability of a secondary mortgage market and securitization program are: -Stable or improving macroeconomic environment -Sufficient legal, tax and regulatory framework (e.g. title, ownership, stamp duty) -Robust primary market operations and standardization (e.g. technology, appraisal/valuation standards, credit bureau, title insurance, private mortgage insurance, rating agency(ies)) -Capital market preparedness and appetite for MBS/bonds -Economic incentives for secondary market participation Preconditions For a Secondary Market

DEVELOPMENT OF SM Benefits Of Establishing SM  More reliable and stable source of liquidity--help banks to meet future capital needs in light of BASLE and concentration targets  Strengthen primary market -standardize guidelines and documentation -technology-shared cost and expertise -improved quality of assets  More systematic approach to risk- controls for safety and soundness  Greater transparency and disclosure  May increase the involvement of the private sector and help to dissipate various risks  Deepening of the capital markets by increasing the confidence of the both domestic and international investors  Lowers the cost of borrowing and gives more options to borrowers  May lead to deregulation and increased competition

DEVELOPMENT OF SM  Markets too small  Deterioration of asset quality of banks  Banks have excess liquidity – no need for funds  Lack of specialized primary market lending institutions (non- deposit-taking)  Lack of adequate and inexpensive funding sources  Reduction in other types of lending ( e.g. corporate lending, trade finance) has created very competitive “ price war ” – slow down in mortgage origination – may not be market rate pricing  Banks reluctant to get rid of high-quality mortgage assets  Lack of regulatory/tax incentives to sell mortgages (if off- balance sheet)  Weakened ability to affect monetary policy  Public sector has unfair subsidies, not a “ level playing field ” Obstacles to Secondary Markets

VARIOUS APPROACHES  Collaboration with number of parties -Poland, Colombia, Romania  Balancing of public and private involvement -Korea, India, Bangladesh, Mexico  Regional integration – cross border -Baltic States, Central America  Capital markets reform -Poland, Colombia, Korea, Bulgaria, Romania Developing Capital/Secondary Markets