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Mortgages: Both Sides of the Medal - Dmitry Leus
Dmitry Leus: “If income allows it, I advise early
mortgage repayment”
Buying a property is certainly not a situation when
one should “jump in feet first”, in particular when it comes to taking out a
mortgage. Which are the main points potential mortgage buyers should keep in
mind?
Suppose you decided to improve your housing situation:
buy your own flat, move from a two-bedroom flat into a three-bedroom apartment,
or move closer to the centre. The decision is taken..., but you cannot afford
it. That is the exact moment when the concept of the mortgage comes to mind.
Some view mortgages as a form of modern enslavement
but, honestly, saving millions is a difficult task for common mortals. Of
course, mortgages have their advantages and disadvantages. There are a lot of
small but important details borrowers should know in order to avoid trouble.
One thing is clear - on your road to the paradise of home owners, do not stop
at the first bank, and do not blindly agree to all conditions.
Take it or leave
it
In summer 2011, the mortgage market was very
attractive for borrowers - thousands of offers, promotions, discounts, as
lenders competed to win over customers.
Then came fears over the possibility of a “second
wave” of the crisis. And things on the mortgage market began to change...
Currently, banks have started to raise interest rates
on loans, including mortgages. For the moment the increase is still small, not
over 1 percent, but that may change...
“In the current macroeconomic environment, new home
owners wishing to apply for a mortgage should act quickly”, recommends the Chairman
of Dmitry Leus, justifying his position by expert opinion stating that
interest rates are not expected to fall in the short to mid-term. Quite the
opposite: “in fact, in crisis situations, banks not only tend to increase
interest rates, but also to adopt more restrictive mortgage approval
processes”, explains the banking specialist. “In other words, client
applications run a greater risk of being rejected, as assumptions are tested
against a more pessimistic scenario, and documentary evidence requirements with
regard to client data such as income history undergo higher scrutiny”, says DmitryLeus.
“Many banks have begun to tighten credit conditions.
This is the result of increased costs of credit resources. Better to jump on
the bandwagon of low rates right now”, equally confirms Sergei Arzyantsev,
Head of Mortgage Lending at Nomos Bank.
Dmitry Leus: “Russian Regions is Our Means of Survival” 3
- I have often heard private bankers complain
that the mortgage sector is an “unlevel” playing field. Do you agree that
privately-owned and state banks are not competing at arm’s length?
- Dmitry Leus: I agree, but we should keep in mind that unequal conditions do
not only prevail on the mortgage market. A big player such as Sberbank is able
to provide SME lending at a rate of 8% p.a. whereas our average-weighted cost
of funds ranges between 8.5 and 8.75%.
On the other hand, we have our
own competitive advantages. We can afford to show flexibility when it comes to
evidentiary requirements with regard to a client’s income. In addition, as a
small bank, we can immediately adapt to sudden market changes. To turn around a
big bank is something else. Our mortgage rates are therefore cheaper than
Sberbank’s at the moment. This is because we were recently able to sell an
important portfolio of securities, and have even excess liquidity now. These
funds need to be invested somewhere, and this enables us to lend at lower
margins.
Every international consultant
will confirm that an ideal credit portfolio should have the following outlook:
50% of it should be invested into collateralized loans, 10-15% should be
invested into consumer lending, or other high-yield credits, and 20-30% should
be kept in treasury bonds or other safe-haven securities which can easily be
sold or refinanced with the Central Bank.
- You have recently engaged in consumer
lending. What has been your experience?
- Dmitry Leus: We had mortgage rates starting at 9.95% and noticed that some
client agreed to these conditions. The average rate on the market is currently
10%. We can afford lower rates and have no plans to raise them because we
dispose of sufficient liquidity. However, at some point we will nevertheless
have to increase our rates, because the next wave of funding is likely to be
more expensive. In any event, consumer loans are a good way of boosting our
overall profitability
- There are many similar products on the
market now. What is your competitive
advantage?
- Dmitry Leus: The most important thing in consumer
lending is a good organization of sales, in addition to a high-quality client
service. For instance, our “New Year’s Loan” is designed for people who cannot
afford to buy Christmas presents for their beloved ones. What counts for such
clients is the speed at which the loan is issued. They are not bothered by the
fact that they will have to pay a premium of RUB 200 per month. We can offer a
quick service if the client has good scores and underwriting results. The first
criterion is credit scores. Some lenders get satisfied with good scores and
will mechanically award the loan. For us, scoring is just the first step, the
second step being underwriting. We may not have the lowest rates on the market,
but in order to keep default rates low we put quality over volume.
- Let’s return to funding. Is it correct to say that client deposits
constitute about half of your liabilities?
- At the same time, I understand you are not
attracting clients by means of higher deposit rates. By which means do you
attract them?
- Dmitry Leus: I have the impression that we have less and less people shopping
around and going from bank to bank in search of the best interest rates.
- Well, I shop around...
Инвестиции в банк №1 советы от Дмитрия Леуса
Автор: Леус Дмитрий Исаакович 24.11.2015
Главным достоянием Татарстана можно считать Татнефть, в Башкирии – Башнефть, то в Республике Якутия – это Алроса. Компания Алроса — лидер мировой добычи алмазов, с долей рынки чуть менее 30%, у основного конкурента, компании De Beers, она меньше. К тому же компания De Beers частная, не торгуемая на бирже, а Алроса недавно провела успешное IPO, и цена на акции в несколько раз выросли, забегаю вперед скажу, что сейчас они находятся в стадии коррекции, но об этом позже. Основные алмазодобывающие мощности находятся в Якутии, запасы сырья у компании значительные. Ежегодно компания увеличивать производство алмазов, вытесняя своих конкурентов с рынка, т.к. обладает значительно более низкой себестоимость добычи, а после девальвации, затраты ещё стали ниже, так как основной сбыт продукции идет за доллары. Рентабельность по EBITDA выросла до значений выше 50%, что дает возможность генерировать не плохую прибыль.
В настоящее время на рынки алмазов наблюдается снижение спроса, как результат падение цены, что не могло не сказать на котировках акций компании (см. рисунок №1). Которые упали с уровня 84 рублей, до текущего значения в 50 рублей. Однако не только это повлияло на снижение, больше похоже на то, что выходит какой-то крупный игрок, возможно решив зафиксировать свою прибыль, или под негативным влиянием санкций. Игрок, распродав последнее, снимет гнёт и акции компании смогут выстрелить стремительно вверх, после преодоления линии снижающегося тренда.
Алроса, инвестиции от Дмитрий Леуса
Рисунок №1. Котировки акций Алроса в 2015 году.
На график котировок акций не попала линия поддержки, находящая на уровне 48 рублей, при достижении которой и стоит покупать акции. Оптимальным считается покупка акций надо на дне, чтобы получить максимальную прибыль от вложений. Многие допускают ошибку, покупая на пиках, и обжегшись, больше никогда не вкладывают в акции на фондовой бирже.
Перспективы у компании очень хорошие, если бы не дальнейшее снижение рубля, то по итогам текущего года компания могла показать рекордную прибыль, около 100 миллиардов рублей, но девальвация благо для компании, как я уже писал выше. И вполне возможно в 2016 году мы увидим прибыль ещё выше, я допускаю возможность увидеть и 120 миллиардов рублей! А с учетом того, что дивидендная политика компании предусматривает выплату дивидендов в размере 35% от чистой прибыли по МСФО, они будут более чем достойными.
Несмотря на то, что компания №1 по добычи в мире алмазов, она продолжает расти, собираясь в течении ближайших 3-5 лет увеличить добычу ещё на 20% от текущих уровней. Конкуренты же не вкладывают в своё развитие, разработка новых алмазных шахт, очень затратное дело и значительное по времени, да и нету сейчас таких месторождений в мире. Нынешние месторождения истощаются, и уже в 2017 году будет наблюдаться дефицит, и с годам он будет только расти. У Алросы имеется солидный запас уже добытых алмазов на складе, по самым скромным подсчетам, составляющий порядка 50 миллиардов рублей! А ещё компания намеревается в ближайшее время продать, свою газодобывающую дочку Роснефти, выручив за неё 50 – 60 миллиардов рублей.
Если вы ещё раздумываете, то стоит поспешить, как долго мировой лидер по добычи алмазов будет торговать на уровне меньше четырех годовых прибылей, сказать сложно, но думаю что это не надолго.
Dmitry Leus: “Russian Regions is Our Means of Survival” 2
- I have often heard private bankers complain
that the mortgage sector is an “unlevel” playing field. Do you agree that
privately-owned and state banks are not competing at arm’s length?
- Dmitry Leus: I agree, but we should keep in mind that unequal conditions do
not only prevail on the mortgage market. A big player such as Sberbank is able
to provide SME lending at a rate of 8% p.a. whereas our average-weighted cost
of funds ranges between 8.5 and 8.75%.
On the other hand, we have our
own competitive advantages. We can afford to show flexibility when it comes to
evidentiary requirements with regard to a client’s income. In addition, as a
small bank, we can immediately adapt to sudden market changes. To turn around a
big bank is something else. Our mortgage rates are therefore cheaper than
Sberbank’s at the moment. This is because we were recently able to sell an
important portfolio of securities, and have even excess liquidity now. These
funds need to be invested somewhere, and this enables us to lend at lower
margins.
Every international consultant
will confirm that an ideal credit portfolio should have the following outlook:
50% of it should be invested into collateralized loans, 10-15% should be
invested into consumer lending, or other high-yield credits, and 20-30% should
be kept in treasury bonds or other safe-haven securities which can easily be
sold or refinanced with the Central Bank.
- You have recently engaged in consumer
lending. What has been your experience?
- Dmitry Leus: We had mortgage rates starting at 9.95% and noticed that some
client agreed to these conditions. The average rate on the market is currently
10%. We can afford lower rates and have no plans to raise them because we
dispose of sufficient liquidity. However, at some point we will nevertheless
have to increase our rates, because the next wave of funding is likely to be
more expensive. In any event, consumer loans are a good way of boosting our
overall profitability
- There are many similar products on the
market now. What is your competitive
advantage?
- Dmitry Leus: The most important thing in consumer
lending is a good organization of sales, in addition to a high-quality client
service. For instance, our “New Year’s Loan” is designed for people who cannot
afford to buy Christmas presents for their beloved ones. What counts for such
clients is the speed at which the loan is issued. They are not bothered by the
fact that they will have to pay a premium of RUB 200 per month. We can offer a
quick service if the client has good scores and underwriting results. The first
criterion is credit scores. Some lenders get satisfied with good scores and
will mechanically award the loan. For us, scoring is just the first step, the
second step being underwriting. We may not have the lowest rates on the market,
but in order to keep default rates low we put quality over volume.
- Let’s return to funding. Is it correct to say that client deposits
constitute about half of your liabilities?
- Dmitry Leus: Yes, we have more than RUB 9bn in
deposits and an overall balance of RUB 18.5bn.
- At the same time, I understand you are not
attracting clients by means of higher deposit rates. By which means do you
attract them?
- Dmitry Isaakovich Leus: I have the impression that we have less and less people shopping
around and going from bank to bank in search of the best interest rates.
- Well, I shop around...
Dmitry Leus: “Russian Regions is Our Means of Survival”
The Russian
banking system is showing signs of a liquidity crisis, with growing fears of a
financial crisis, and Alexei Kudrin is speaking about a full-fledged economic
crisis. At the same time, the Chairman of Bank Zapadny, Dmitry Leus, speaks
about hyper-liquidity and contemplates conducting an IPO.
- Dmitry Isaakovich, there is a general belief that small banks
must specialize in order to be successful. On the other hand, you offer a
relatively broad product line and behave like a universal bank. Why did you
choose such a strategy?
- Dmitry Leus: The truth is that we are not a
universal bank in the full sense of the term, as our main focus is still in
retail banking. But our retail offering is universal indeed – mortgage loans,
car loans, overdraft loans, and other consumer lending products. When it comes
to loans for small and medium-sized enterprises (SME), we currently adopt a
more cautious approach. I am not saying that we are not working at all in that
sector, but corporate lending requires a more complex analysis of our
customers. In addition, the last two years have seen defaults mostly in the
sector of SME lending.
On the
other hand, an analysis of default statistics shows that mortgage lending is a
relatively safe product. Unfortunately, it is impossible to survive from
mortgages only, due to lower profit margins in this segment.
- Can you tell us more about the mortgage
lending market? Are you working with
the Agency for Housing Mortgage Lending (AHML), an institution studying the
international experience of mortgage lending in order to introduce best
practices into Russia?
- Dmitry Leus: AHML requires its partners to fulfil certain criteria. However,
in my opinion, a large part of our country does not meet these criteria.
Unfortunately, unofficial revenues still constitute an important part of the
Russian economy.
In general, the belief that
credit should only be awarded based on documented income is misguided. Take a
15-year mortgage – who in our country can look back to a 15-years track record
within one single company? The focus should therefore be on the collateral. If
a loan can be justified in light of the collateral, then less attention should
be given to the income history of the creditor.
- Does that mean that you raise capital based
on your liabilities?
- Dmitry Leus: Correct. We basically use deposits
when lending, in addition to the Bank’s capital, of course.
- Is this not too risky? A bank’s liabilities
are of a short-term nature, as deposits may be withdrawn at any moment. A
bank’s assets, however, often take years to mature.
- Dmitry Leus: I do not deny that there is a certain risk involved.
Nevertheless, on average, a mortgage loan’s maturity amounts to 5 years. In
addition, any loan, even if it hasn’t been awarded according to AHML standards,
may be ultimately sold. Sberbank, for instance, offers such programmes, as well
as the other banks. There are also partner programmes that allow raising
liquidity when necessary. But for us this is the last resort, because it is not
our goal to work as an agent. We intend to preserve our client base and to
offer them the products and services they ask for.
: "I see great potential in the revival of small and medium-sized businesses in the Russian regions."
- This is open for debate. The
crisis has also shown that repayment shortfalls have only slowly increased in
the segment of consumer lending. At the same time, corporate creditors have had
recourse to several tricks such as automatic roll-overs in order to hide away
their repayment difficulties.
-
Dmitry Leus:
I agree with your observation. Every credit decision happens against the
background of a bank’s financial risk management.
Bank disposes of a strict system for financial
risk modelling. Every day, we receive approximately 2500 new credit requests
from private individuals. Among all these requests, only about 18% receive
final credit approval. In addition, repayment shortfalls of up to 60 days are
addressed by our debt collection services. The latter’s collection strategy is
continuously being adapted to prevailing market conditions. For example, there
existed a period when we completely stopped lending to individuals under the
age of 25, as we observed a specific age-related difficulty when it came to
repayment discipline.
Furthermore,
our analysts are monitoring Bank ’s credit portfolio on an ongoing basis. We
provide RUB 1bn of finance to the Russian population every month, which
constitutes a relatively small amount. On the other hand, it is just enough to
subject our credit portfolio to a thorough analysis and take ad-hoc decisions
when needed. In light of Bank ’s 70 branches across Russia, I may add that
working in the Russian regions has proven easier than in the capital, as loan
repayment rates have historically been higher in the periphery. In total, our
current private-loan default rate amounts to only 6 percent.
In contrast, in the realm of small and mid-size businesses we have so far practically not seen any
arrears at all, which may be due to the fact that we have just entered this
market. Thanks to our cautious approach to risk, I am convinced that our
default rate in this segment will be even lower than during our private lending
activities.
Let
us not forget that consumer lending in general is a mass market that is
dominated by standardized processes. SMB lending, on the other hand, allows for
an individual approach which takes into consideration the multitude of layers
of a credit request. Thus, prior to being forwarded to our centralized Credit
Committee in Moscow, every corporate credit submission is carefully prepared in
one of Bank ’s regional branches. For example, our regional credit specialists
conduct site visits during which they value the respective company’s market
standing, monitor contractual partners, and go through a potential client’s
consolidated financial statements. Such an in-depth approach enables us to
select the top tier out of 10 applications.
- Your bank has been in existence on
the Russian market since 1993. This is an important period in the relatively
young Russian banking sector. Bank has
lived through more than one crisis. Based on your experience, which should be
the strategy of today’s commercial banks in Russia?
- Dmitry Leus: The survival strategy for niche
commercial banks in contemporary Russia with its economic uncertainties
consists in sound risk management.
From
a business perspective, the secret of success for weathering any crisis
consists in the strong will of the bank’s owners and stakeholders to preserve
and develop their business. The first thing which is being taught in business
administration courses is the theory of economic choice – that is, the choice
one must make when faced with two or more alternative uses of a resource.
Crisis economics simply dramatizes this basic economic choice.
The
banking industry today presents higher risks than other economic sectors. To
take these risks is the choice of every shareholder and manager. I arrive at
work before 8 am and leave the bank after 8 pm. This is the only way to work in
order to achieve good results. The banking industry consists of a multitude of
little things hardly recognizable to outsiders. However, taken together they critically
impact the bank’s financial results. Every aspect of the business must receive
its due attention, starting with administrative tasks and ending with the
closure of big transactions. There are a million of details which may escape
the attention of the bank’s managing director. A permanently heightened state
of alert should therefore become the responsible banker’s second nature. In my
opinion, a bank controlled and managed by its owners is the best guarantee of
success.
In
addition, the right risk management does not consist in doing the maths and
then ticking the box. Rather, it consists in picking up the faint signal of
today that will become tomorrow’s big challenge – a practice the Austrian
economist and management consultant Peter Drucker has called the anticipation of a future that has
already happened. Risks are present in every form of business. However,
some risks are balanced by reasonable rewards, others are not. The essence of
entrepreneurship consists in getting this balance right.
Businesses in the Russian regions
-
Dmitry Leus,
what is your assessment of the current state of the Russian economy? Is
the banking sector feeling the stagnation announced by certain analysts?
-
Dmitry Leus:
To give assessments and predictions is an ungrateful task.
The Russian and worldwide economy are such that no one can hope to grasp the full picture and make plausible forecasts.
Today, even senior analysts equipped
with the most refined methods of forecasting struggle at making straightforward
statements. I will therefore not engage in forecasts and
complex theories. However, I am prepared to share some
simple thoughts on the current market situation.
In my view, at
the present moment, both a crisis and a sudden breakdown are equally unlikely. I rather expect a situation of slow stagnation requiring some time for adaptation. The banking sector, the regulator, and
private enterprises will need to renew their focus on their
core activities. In such circumstances, it is necessary for market
participants to adjust their behavior in order to work effectively and survive.
We must keep in mind that the
popularity of any bank’s core products is in many ways a function of the
general market situation. How to explain otherwise the fact that in the recent
years almost all financial institutions rushed into consumer credits? Banks are
only prepared to take risks if they are rewarded by profits. If, however, costs
of funds are high, banks need to play by different rules in order to develop in
a sustainable way.
Thus,
as long as costs of funds were low, actively increased its mortgage loan
portfolio. At the same time, we heavily invested into our IT infrastructure,
created a professional management team, and opened up new branches in strategic
locations. However, we were obliged to adjust our expansion plans in the
aftermath of the 2008 financial crisis. For a short while, we had recourse to
various refinancing options, but quickly realized that our profit margin in
this particular segment was too small. Like many other financial market
players, we finally had to adapt our strategy to the new environment. Hence,
our attention switched to new lending products with smaller margins but higher
volumes, and to repayment schedules ranging between 2 and 3 years.
Currently, we plan to slowly return
to mortgage lending, albeit on a much smaller scale than before.
- Could we say that Bank, like most
of its competitors, is currently mainly active in the segment of consumer
loans?
-
Dmitry Leus:
This is correct, but we are not inactive elsewhere, and plan to
expand our presence in other sectors too. Consumer loans constitute a
significant part of our current portfolio, but we also plan to address the
capital needs of small and mid-size businesses (SMB) and to provide corporate
loans.
As
you may know, we have recently signed our first contract with SME Bank (The
Russian Bank for Small and Medium Enterprises Support) – a subsidiary of
Vnesheconombank (VEB). Funds will be used for corporate lending, mainly through
our regional offices. This will undoubtedly have a positive impact on the
development of Russia’s regional economy. Bank has the intention of continuing
its co-operation with SME Bank and signing additional contracts over RUB 3bn.
Overall,
we have been providing loans to SME Bank for quite some time. For example, in
the past we offered a product called “The Millionaire”, whereby individual
entrepreneurs were eligible to receive credits amounting to RUB 1 million if they
met certain criteria. Accordingly, we have accumulated experience in valuing
small businesses and have even developed our own approach when lending to
entrepreneurs. This is a practice we can always return to, even when times are
difficult.
It
is my deep conviction that banks need to be diversified, even if some of my
Russian colleagues may disagree. In today’s market environment, only effective
diversification is able to successfully mitigate certain regulatory risks.
However, as long as there is a popular consensus that higher than normal profit
margins can only be reached at the price of higher risks, even a profitable
bank may face the risk of a regulatory crackdown if it concentrates its assets
in high-margin product lines.
Особенности деятельности коммерческих банков до начала I мировой войны.
Леус Дмитрий: банки
– одно из центральных звеньев системы рыночных структур.Они являются кредитными
организациями, имеющими исключительное право осуществлять в совокупности
следующие банковские операции: привлечение во вклады денежных средств
физических и юридических лиц, размещение указанных средств от своего имени и за
свой счет на условиях возвратности, платности, срочности, открытии и ведении
банковских счетов юридических и физических лиц.
Леус Дмитрий Исаакович:
основное назначение банка это посредничество в перемещении денежных средств от
кредиторов к заемщиками и от продавцов к покупателям. Развитие их деятельности
– необходимое условие реального создания рыночного механизма. Устойчивость
банков существенным образом влияем на эффективность экономики страны.
Дмитрий Леус – Банковское дело возникло и развивалось на базе
капитала, приносящего проценты. Еще при разложении первобытно общинного слоя
использовался ростовщический капитал. Богатеющие представители верхушки власти
давали средства в займы. Развитие ростовщического капитала и положило начало
банковскому делу.
