More banks eyeing mortgage finance industry

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The positive prospects have encouraged many banks, such as Credit Agricole EgyptCredit Agricole Egypt, to expand its business in the Egyptian house financing sector. The global banking group has recently increased its share in the Egyptian Housing Finance CompanyEgyptian Housing Finance Company (EHFCEHFC), one of Egypt's leading house mortgage companies, to 99.98 percent.     

On Dec. 21, Credit Agricole EgyptCredit Agricole Egypt declared that it had fully acquired EHFCEHFC after receiving the approval of the market regulator.

"We believe that this investment will enhance our revenues as well as our shareholders' value," said Henri Guillemin, managing director of Credit Agricole EgyptCredit Agricole Egypt, in a statement.

Credit Agricole EgyptCredit Agricole Egypt

EHFCEHFC

The successful deal has enabled Credit Agricole EgyptCredit Agricole Egypt to purchase the shares of the International Finance CorporationInternational Finance Corporation (IFCIFC), the Organization of the Petroleum Exporting CountriesOrganization of the Petroleum Exporting Countries (OPECOPEC) and the Housing Development Finance Corporation LTD (HDFC).

EHFCEHFC

EHFCEHFC

Mamdouh Al-Waly, deputy editor-in-chief of Al-Ahram for economic affairs, said that the acquisition will benefit both sides.

"Credit Agricole will definitely help EHFCEHFC with funding, and in return the company's successful business will boost the bank's revenues and share price," he said.

The last few years witnessed much enthusiasm about the growth prospects of the mortgage industry in Egypt. In 2008, Investment Minister Mahmoud Mohieldin announced that mortgage finance in Egypt was growing at 32 percent per year, expecting that the industry can double in size by the end of June 2009.

However, the property mortgage market in Egypt, according to some views, has performed poorly since the end of 2008 due to the global economic downturn.

Yet, many observers believe that the newly introduced industry is picking up, attaching little importance to the impact of the global downturn.

"While the local real estate sector has encountered periods of stagnation, it is foreseen to prosper significantly," Bassiouni said in a statement.

Al-Waly believes that the global economic crisis has had a minimal effect on the Egyptian real estate mortgage market because of its limited size.

Around seven companies and 14 banks are the main players in the real estate mortgage market in Egypt. But the booming sector is capable of attracting more investments. 

Notably, in 2008, the Commercial International Bank (CIB), Egypt's largest bank by market value, announced that it had received a loan of LE 1.3 billion from the US government to enhance its house mortgage business.

Also, in September 2009, the World Bank agreed to support Egypt's Affordable Mortgage Finance Program with a loan of $300 million.

Although there is enough liquidity in the Egyptian house mortgage market, it is still facing many challenges.

"Egypt's mortgage sector is hit by high interest rates as well as red tape," Al-Waly told Daily News Egypt. He argues that the tough conditions imposed by lenders do not allow the limited income segment to benefit from the growing house mortgage business.  

Although the government is encouraging both lenders and borrowers by amending the law, many observers argue that in a country where only around 10 percent of citizens have bank accounts, the house financing industry in Egypt still has a long way to go.

In 2009, the government announced plans to amend its mortgage finance law, changing the mortgage percentage of total income, facilitating access to funding particularly to youth.

According to the original law, the percentage of the mortgage shouldn't exceed 25 percent of income, and the amendments aimed to raise that to between 30 and 33 percent, while maintaining lower risk levels for mortgages.

By Dina Abdel-Mageed

© Daily News Egypt 2009