Vicious circle of bank lending





11.01.2014 00:30
Articles about real estate | Vicious circle of bank lending To date, banks are reluctant to lend to investment projects. Projects at an early stage of development requiring credit for a period of 5-7 years are not considered, because of the large share of the risks and lack of so-called "long money". Today to build a bank lending is not as easy as it seems. First you need to find a bank that agrees to lend to the project , and then evaluate all the conditions offered to them - the amount , interest, term deposit penalties .

More likely and more or less profitable and possible to provide a loan for the completion of construction or dokreditovanie (subject to availability of 50 % or more) .

The few loans that are issued and discussed today, this short-term loans ( 1-2 years) , aimed either for working capital or to purchase fixed assets (such as equipment). When this prerequisite is a good alternative collateral , as well as having its own activities as a source of income.

In general , the situation " brightens " more principled position and policies of some banks - many have suspended development areas - investment lending , banks have fundamentally abandon such areas - finance construction projects - on the basis of their corporate policy. However, even those who can provide loans, in addition to the above focus on short-term loans with all the nuances , and expose additional restrictions - the amount of credit no more than $ 9 million

Then there is a reasonable question - " Is it profitable to build on such conditions ? " And the answer comes by itself .

To date, loan rates reach 22-26 %. In the portfolios of banks have loans that are flourishing in the construction industry and are issued at 30% per annum.

In order to safely build with credit under 30% , or even under 22% should be a very good sales , similar to that which was before the crisis in Ukraine . When a loan at 30% taking into account the dynamics of the implementation area today cash flows from all areas are not sold on the development of the project and to repay the interest on the loan .

On the other hand, the practice of mass construction and lending since 2002 " instilled " companies tendency to develop the project and to build an entirely with borrowed funds , which are often up to 90 % of the budget of the construction project . Very often companies come for a loan with a land bank and the draft design , without the willingness to finance the construction or willing to finance only the design documentation and the initial "zero" stage of construction . The lion's share of project financing assumed by borrowings . The expense of future sales of active area ( ideally, supposed to "zero" phase ) could reach the ceiling of the loan. Picture develops quite idealistic and utopian , but , nevertheless , to date not having nothing to do with reality .

As of 2013 sq.m large sales of real estate - no . Those sales , which were laid in the business plans when you make loans in 2007-2008, less long at times.

Consequently, in the context of today , the amount of loan funds to build and finish the object should be more , is not sufficient , and the amount of loan payments ( due to lack of sales ) increases . The developer is not able to afford to pay such high interest rates on loans in the absence of the dynamics of the project and sales.

The reason of such high rates, a lot of reasons including lack of banks enough money .

Furthermore, the level of problem assets in banks as of 2013 is ~ 30-35 % and is similar to the level in 2012 . While bank reserves to cover risks account for only 40-45 % of the volume of bad loans , which is not enough.

It is a vicious circle - the banks do not have any opportunities to reduce non-performing loans (not so many willing , able to buy a bank draft and implement a problem ) or to increase reserves and working capital .

Worst case of such actions could be stopping the project and " translate it into the category of perpetual unfinished ."

In addition, it is worth noting a number of reasons, which are of great influence on the business climate of the country in general and the real estate market and the policy of financing investment projects in particular :

1. Ukrainian banks repay debt to parent banks - return financing received from their banking group companies - part of banking groups are thinking about reducing or minimize their activities and reformatting the model of the Bank in Ukraine.

2 . Contract and not grow loan portfolios of international banks in their subsidiary banks in Ukraine.

3 . Ukraine in the world is estimated as a risky state, which do not perceive the world as a platform for profitable investments . ( International rating agency «Standard & Poor's» downgraded Ukraine's long-term credit obligations in foreign and national currency by one notch to «B-» (« highly speculative " ) with a " negative" outlook . At the same time, short-term ratings of Ukraine did not reviewed and affirmed at 'B' . Other international agency - «Moody's» - downgraded the sovereign rating of Ukraine to the level of «Caa1» (« significant risk ") , warning of the possibility of a further downgrade. reasons for this are both agency called " a very low level of foreign exchange reserves " difficult economic situation in the country and the deterioration of relations with Russia .

4 . Outflow in some banks was due to a change in the Ukrainian European owners . For this reason, the new owners of the former Ukrainian subsidiaries of European banks return the money Western shareholders . Care disciplined and conservative foreigners who (including Russian banks ) since 2009 contributed to the share capital of its "daughter" Ukrainian structures ~ 35 billion hryvnia will be a serious loss for the entire banking system , because banks Ukrainian owners quite differently invest in their banking business. Risks increase , and banks are more dependent on the macroeconomic situation in the country and political differences with Russia and Europe .

5 . Ukraine is one of the world leaders in non-performing loans in banks' portfolios . In autumn 2012, the rating agency «Fitch» assessed the level of problem debt , ie, nonperforming and restructured loans, 45-50 % of the total portfolio of Ukrainian banks. This has two main reasons : excessive credit expansion before the crisis and a weak judicial system protection of creditors at which the actions of unscrupulous borrowers remain unpunished. Banks do not always get the same liquid collateral , surrendered on account of non-payment and pay off the loan previously granted credit.

6. Banks today is not able to resume lending and ensure projects at a level that would be economic growth stimulants . And with the growth of the economy , bad loans would be compensated "good" .

7. The main source of financial resources for the banks today are public funds , whose share in the liabilities of the banking system increased as compared with 2012 from 37.5 to 38.1% . Increasing the share of deposits of population growth has resulted in deposit rates , which reached 25-27 % per annum. And since all the devaluation expectations remain high in the future population is unlikely to reduction of interest rates on deposits . And again, a vicious circle - expensive deposits and high deposit rates - expensive loans and high interest rates on loans.
Victor scorner CEO,
Build & Live Development
Building.ua

Content tags: Mortgages
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