German mortgage banks - financial services providers for Europe

Bonn, Germany 22. února (PROTEXT) - A graphic will soon beavailable at: http://www.news-aktuell.de "Continuous and high growth rates have characterised theEuropean operations of the German mortgage banks in recentyears," said Dr. Karsten von Köller, President of the Associationof German Mortgage Banks and Member of the Managing Board ofRHEINHYP Rheinische Hypothekenbank AG, Frankfurt, on the occasionof a press conference staged by the Association in Brussels. Theaggregate volume of loans had risen more than four-fold withinthe space of only two years, from 12 bn Euro in 1997 to approx.67 bn Euro in 1999. This was almost 8 % of the entire volume oflendings by the mortgage banks. Von Köller went on to say thatthe predominant field of business was public-sector lending, i.e.lending activities with EU member states, their regionalgovernments and their cities, towns and municipalities. As atend-1999 these accounted for some two thirds of the lendingvolume, or 42 bn Euro. The most important market with a lendingvolume of more than 10 bn Euro were Italian public-sector. Yet the mortgage banks had also gained a firm foothold on allthe major property markets of the EU. Of an aggregate lendingvolume of a good 15 bn Euro, Great Britain was the mostsignificant market with a volume of 6,3 bn Euro. The main focusof property finance was on the financing of commercial propertiessuch as, for example, office and administration buildings andretail premises. No European harmonisation of the mortgage loan Whereas the single European market was increasingly becomingreality for the commercial investor - von Köller went on -sizeable obstacles still stood between the single market and theconsumer. As an example he cited the typical product of theGerman mortgage banks, property loans with a long-term fixed-rateagreement. These could not be offered in a number of EU countriesbecause the national consumer protection regulations - unlike inGermany - did not allow the possibility to repay at any time.This meant, he argued, that consumers were unable to profit fromthe advantages of product diversity in Europe because they didnot have free access to all products. Von Köller said that forthis reason the Association was opposed to a Europeanharmonisation of the mortgage loan, explaining that this woulddestroy product diversity, restrict competition and wouldultimately be disadvantageous for the consumer. Instead -provided the consumer was properly informed and the producttransparent - the consumer who was, after all, of age should beleft to decide for himself. The Pfandbrief - Europe's largest capital market segment Only the market segment of the Jumbo Pfandbriefe - von Köllercontinued - reached, with more than 300 bn Euro, a size that madeit one of the largest bond markets of the Eurozone. He explainedthat Jumbo Pfandbriefe were the liquid segment of the Pfandbriefmarket, the high liquidity being guaranteed by large issue sizes- on average, the volume of outstanding Jumbos was 1.1 trillionEuro - and by the market-making pledge by at least threesyndicate banks participating in the issue. Pfandbriefe and Pfandbrief-type products, von Köller said,were widely spread throughout Europe. In the European Unionduring the last few years new mortgage bank laws had been putinto effect in Luxembourg at end-1997, in France in mid-1999 andin Finland at the start of this year, while similar pieces oflegislation were in the works in Belgium and Ireland. Thisdevelopment could only be welcomed from the German mortgagebanks' point of view since it was enhancing the depth and theliquidity of the market. As a result, the conditions forinvestors would improve, and the attractiveness of the marketwould rise as a whole. Another positive factor in this respectwas that the different products had individual risk/earningsprofiles. Ultimately, the "competition of the systems" wouldreveal which product was wanted by the market. Mortgage loan and Pfandbriefe should not be omitted from theEU Solvency Ratio Directive Von Köller found it astonishing that the EU consultation paperconcerning the capital adequacy rules for banks failed to mentionthe mortgage loan at any point, although this loan type accountedfor no less than 40 % of the aggregate volume of lendings by theEuropean banking industry. As a result of this shortcoming, thebanking industry was being left in the dark in an importantbusiness area as to thoughts on the regulatory treatment of themortgage loan in future. Von Köller went on to say that following last year's EUSolvency Ratio Directive it was currently possible under certainconditions to back the commercial mortgage loan in Europe withonly half the 8 % applicable to normal risks. This reflected theoutstanding safety of commercial financings. Only recently, newstudies showed that the loss rates in the case of commercialproperty loans were just as low as those in residential buildingand several times lower than for unsecured consumer loans. Thiswas why the Association was pressing for half the normalweighting to be retained. The demands addressed to the Basle Committee and EUlegislators, von Köller continued, included that the mortgagecollateral be included in the so-called internal rating systemsin view of plans to determine the loan risk, and with it theamount of capital backing, by way of the rating. But because itwas a proven fact that real-estate secured loans entailed a verylow loss risk, this should be honoured by a low capital backingrequirement. Von Köller warned against treating Pfandbriefe and AssetBacked Securities in a way that would distort competition.Although EU proposals on the weighting of ABS made no referenceto Pfandbriefe, he stated that they were clearly influenced bythe Basle Committee's approach which, in turn, reflected theAmerican mind-set. If Pfandbriefe were weighted at 20 % infuture, like the ABS, instead of at 10 % as they currently were,this would ignore the high degree of safety of the Pfandbriefe,issuance of which was governed by a strict legal framework. In sosaying, von Köller made clear that this did not mean Germany waspleading its own special case, but that other European countriesalso provided for a 10 % weighting of their Pfandbriefe. otsOriginatextservice: Association of German Mortgage BanksInternet: http://www.newsaktuell.de Contact Association ofGerman Mortgage Banks Holbeinstr. 17, 53175 Bonn Tel.: (49) 22895 90 2-0 Fax: (49) 95 90 2-44 http://www.hypverband.de PressDepartment: Franz-Josef Arndt (Tel.: 49 228 95 90 2-46) E-Mail:arndt@hypverband.de Jens Tolckmitt (Tel.: 49 228 95 90 2-62) E-Mail: tolckmitt@hypverband.de

Subscribers please note that material bearing the slug"PROTEXT" is not part of CTK's news service and is not to bepublished under the "CTK" slug. Protext is a commercial serviceproviding distribution of press releases from clients, who areidentified in the text of Protext reports and who bear fullresponsibility for their contents.

PROTEXT