Kapital Business Information Center
The refinancing program for mortgage and housing loans, approved in April, gave many borrowers hope to reduce their debt burden. Meanwhile, some borrowers claim that not all banks are willing to refinance such loans yet. Kapital.kz Business Information Center sought to understand the validity of these rumors and why some banks refused to participate in the state program.
In mid-April, the National Bank announced its decision to invest 130 billion tenge into the capital of the Problem Loans Fund, which will channel these funds to banks at 2.99% per annum for 20 years. State funds were decided to be used to refinance mortgage loans issued between 2004-2009. However, the media repeatedly raised the issue of the appropriateness of using state funds to assist problematic borrowers. Some Kazakhs were puzzled as to why their tax contributions should support borrowers who failed to calculate their risks and repay debts on time. Mikhail Klenchin, Chairman of the National Fund for Financial Services Development, is adamant in his reasoning. He is confident that the state's initiative is justified.
"When they say that refinancing is done with taxpayer money, this is not so. These are not taxpayer funds, but state money. Saying that state money is my money because I paid taxes is wrong. It is the duty of every citizen to pay taxes, and it is the state's responsibility to allocate them. The state exists to help its citizens realize their rights. Moreover, from time to time, the state must provide help and support. For example, when asked why the state helps problematic mortgage borrowers, the answer is obvious - because these borrowers find themselves in a very difficult situation. These people have survived two devaluations, as a result of which the amount of their foreign currency loan in tenge terms increased. To be honest, the state cannot be blamed for adjusting the tenge rate. There were certain macroeconomic prerequisites for the devaluation. Adjusting the tenge rate was a forced measure. Saying that the state decided to "abandon" Kazakhs is in no way correct," Mikhail Klenchin stated at the Financial Club of the DAMU Fund.
Klenchin cited the recent flood in the Karaganda region as an example. "I can also ask why, at my expense, help is provided to people who built a house in a potential flood zone. But we understand that this is absurd," he emphasized.
Earlier, the National Bank emphasized that the refinancing program aims to reduce the level of "toxic" loans in the country, decrease the dollarization of the economy, and mitigate social tension risks. Indeed, under the state program, borrowers can convert foreign currency loans into tenge and extend the mortgage term up to 20 years. But the main step that banks agreed to take is to waive the collection of debts from borrowers for commissions, rewards, penalties. Problematic mortgage borrowers will only have to repay the principal at 3% per annum. As it turned out, not all banks were ready to participate in the mortgage refinancing program.
"This is because banks will bear a serious burden related to the complete forgiveness and writing off of all mortgage rewards. This will affect their profits. To ensure that banks proceed with such a program, the state will allocate 130 billion tenge. Many bankers directly stated at National Bank working groups that they do not need this refinancing program. Through the Department for the Protection of Financial Service Consumers of the National Bank, very intensive explanatory work was conducted," explained Mikhail Klenchin.
Banks do not want to take tenge
The problem of tenge liquidity shortage, which many bankers complain about, can be solved, as it turned out. But, according to Klenchin, banks do not want to take tenge. "Bankers say they have a liquidity issue with tenge. The situation is quite comical, even the National Chamber of Entrepreneurs demanded from the Deputy Chairman of the National Bank to supply banks with tenge liquidity.
Meanwhile, trillions of tenge are sitting on correspondent accounts at the National Bank - banks can take them. In reality, the National Bank is a treasury, and if it issues tenge, banks must pledge something as collateral. Banks do not want to part with foreign currency because they are all waiting for devaluation," says Mikhail Klenchin.
Out of reach
The refinancing program for mortgage and housing loans, approved in April, has not yet been fully operational. According to Klenchin, not all bank managers are aware of the program's nuances. "Many mortgage borrowers are turning to banks to apply for the state program. But some banks respond: 'Nothing is known yet, come back tomorrow.' This is due to the fact that not all banks have communicated the necessary information to their employees about the state program. Unfortunately, local managers do not possess the necessary knowledge. This is due to them not being familiar with the program conditions yet, as they received the text very late. It is essential to consider that banks, beyond the refinancing program's requirements, need to develop their methodical recommendations. Some banks haven't managed to do this. If a borrower is denied when applying at a bank, they should approach the National Bank's Department for Consumer Rights Protection of Financial Services," noted Mikhail Klenchin.
Not all banks made it onto the list of financial institutions that can refinance mortgages under the state program. Thus, 9 banks were included in the program: 38.1 billion tenge was allocated to Kazkom, 33.6 billion tenge to Halyk Bank, 20.3 billion tenge to ForteBank, 15.6 billion tenge to Bank CenterCredit, 9.5 billion tenge to ATF Bank, 5.3 billion tenge to Kaspi Bank, 3.6 billion tenge to Tsesna Bank, 2.4 billion tenge to Eurasian Bank, and 1.6 billion tenge to Nurbank.
Meanwhile, problematic mortgage borrowers are not only in the specified banks. They can also consider refinancing their mortgage in a bank that received state injections but only under certain conditions.
"For instance, if borrowers of AsiaCredit Bank approach a bank that was allocated refinancing funds and are denied, they should apply to the National Bank. If AsiaCredit Bank and, for example, Tsesna Bank sign an agreement, then AsiaCredit Bank borrowers can refinance their mortgage at Tsesna Bank. There are many questions about the program, as it was developed very quickly and is largely unspecified. It is impossible to model all situations. A bank must review a borrower's refinancing application within 15 days and notify them in writing of their decision, explaining any refusal reasons. The term for reviewing an application can be extended to 30 days," Mikhail Klenchin noted.
The lack of clearer points in the refinancing program prompted the development of various fraudulent schemes. "There are people who offer to include borrowers in the program for a fee, even if they do not meet the criteria. We will combat such fraudsters in collaboration with law enforcement, the prosecutor's office, and including the National Security Committee. This issue has already been raised. Complaints have been filed with law enforcement, and they are handling them. Meanwhile, various legal companies may charge up to $10,000 for helping with refinancing document arrangements. Formally, the actions of such firms are not illegal. However, if we look at the situation from another perspective, a person is already experiencing financial difficulties, and another $10,000 is being demanded from them. Unfortunately, we cannot take action against such lawyers, as they are entitled to set their service fees at their discretion," emphasized Mikhail Klenchin.
The logical question arises: will 130 billion tenge be enough for all problematic mortgage borrowers? As previously highlighted by the National Bank, "more than 20,000 loans are expected to be refinanced under the program, including more than 5,000 loans to borrowers belonging to socially vulnerable segments of the population." Mikhail Klenchin, who participated in working groups discussing the refinancing program, assured that the funds would suffice for everyone. "130 billion tenge is not the amount banks will pay off borrower's debts with. These are funds injected into second-tier banks to enable them to refinance loans. So, in fact, these funds will not reach the borrower's account, which is why stating that the money won't be enough is incorrect. There won't be a situation where 30 billion tenge worth of applications are serviced in a week, leaving 100 billion tenge afterward. If 100 borrowers apply for refinancing, 100 borrowers meeting the criteria will receive refinancing. The 130 billion tenge covers all the banks' expenses," specified Mikhail Klenchin.
Who can qualify for refinancing?
To reiterate, borrowers with mortgage and housing loans issued between 2004-2009 can participate in the state program. Another criterion is a loan delinquency over 90 days as of January 1, 2015.
However, these are not the only requirements. The loan collateral must be the borrower's and their spouse's sole residence. The total living area must not exceed 120 square meters, and the land plot must not exceed 10 acres. This requirement will not apply to borrowers belonging to socially vulnerable populations.
According to the state program, the category of socially vulnerable populations includes people with disabilities, those equated to disabled and WWII veterans, families with or raising children with disabilities, people with severe forms of certain diseases, retirees, orphans, or those left without parental care, repatriates, and persons who lost their homes due to ecological disasters, natural or man-made emergencies. Also, large families (4 or more children), families of people who died in the line of duty, during military service, preparing for space flight, or saving lives in law enforcement. The category of socially vulnerable populations also includes single-parent families where a child or children are being raised by one parent. This includes divorced spouses.
Moreover, the principal debt in tenge must not exceed 36.47 million tenge. If this is a foreign currency debt, it should be equivalent to 36.47 million tenge at the National Bank rate on January 1, 2015 – 200 thousand dollars. Determination of the refinancing loan amount issued in foreign currency is carried out by banks at the official National Bank exchange rate of Kazakhstan at the refinancing date. For loans with a court ruling in force at the refinancing date, the refinancing amount is determined based on the principal debt: in tenge - according to the court ruling; in foreign currency – in tenge equivalent at the official National Bank exchange rate at the court ruling date.
"The issue of which exchange rate to use for calculations has been raised multiple times. And it's logical since the rate has significantly changed. Borrowers suggested refinancing at the 2004, 2005 rates, but this is impossible by law, technically," explained Mikhail Klenchin.
Mortgages and housing/mortgage loans with enforceable court rulings will be subject to refinancing.
Priority: housing/mortgage loans to borrowers belonging to socially vulnerable populations, housing loans, and mortgage loans.