Mo­men­tum in NUCA’s auc­tions to con­tinue: Bel­tone Re­search

HDB stands as key ben­e­fi­ciary on con­tin­ued flow of low-cost de­posits

The Daily News Egypt - - Banking - By Mo­hamed Samir

Con­tin­ued mo­men­tum in the New Ur­ban Com­mu­ni­ties Author­ity’s auc­tions is ex­pected, as Hous­ing and Devel­op­ment Bank (HDB) stands as a key ben­e­fi­ciary, ac­cord­ing to a re­port is­sued by Bel­tone Re­search.

The re­search firm’s fore­cast was based on HDB’s an­nounce­ment of a very ag­gres­sive 2018 bud­get, with an ex­pected 50% earn­ings growth, in ad­di­tion to the fact that the of­fer­ing of af­ford­able land plots and hous­ing units has been a re­cent pri­or­ity for the Egyp­tian gov­ern­ment.

In March, Min­is­ter of Hous­ing Mostafa Mad­bouly re­vealed the de­tails of the largest launch­ing un­der the NUCA plan for the devel­op­ment of res­i­den­tial, in­vest­ment, ser­vice, and hous­ing units dur­ing FY 2018/19. How­ever, the ex­act auc­tion de­tails have not been an­nounced yet.

Ac­cord­ing to Mad­bouly, the plan in­cludes about 76,211 res­i­den­tial and ser­vice plots in new cities, of which 74,163 plots will be auc­tioned through a pub­lic lot­tery sys­tem. He added that nearly 100,000 hous­ing units are planned for the new cities, in­clud­ing 43,133 units in the Sakan Misr pro­ject, and 35,016 units in the Dar Misr pro­ject.

HDB, which is 30% owned by the NUCA,has a spe­cial sta­tus as the sole de­pos­i­tory for the NUCA’s auc­tion down pay­ments, which gives it an ad­van­tage over peers.

Ac­cord­ing to the re­port, the NUCA’s mo­nop­oly on res­i­den­tial land sales and auc­tions has been in­creas­ingly ac­tive in hold­ing land/unit auc­tions through­out the past four years, as the size of auc­tions car­ried out by the NUCA in 2016 and 2017 has been sig­nif­i­cantly higher than pre­vi­ous years. The author­ity of­fered around 80,000 land plots in 2016 alone, and 45,000 land plots in 2017, which at­tracted around 370,000 in­ter­ested ap­pli­cants an­nu­ally.

More­over, since HDB is the only bank at which in­ter­ested ap­pli­cants can place down pay­ments, such funds are con­sid­ered“tem­po­rary” de­posits, nor­mally stay­ing at HDB for three to six months at min­i­mal cost.

Ac­cord­ing to Bel­tone Re­search, the bank then usu­ally in­vests these de­posits in high-yield­ing, short-term in­stru­ments, which was quite ev­i­dent in the bank’s books dur­ing 2014-2017,as the NUCA’s down pay­ments peaked to highs of EGP 17bn in Septem­ber 2017, mak­ing up around 30% of the bank’s as­sets ver­sus an av­er­age of EGP 900mn be­tween 2009 and 2013.

Con­se­quently, this pushed HDB’s net in­ter­est mar­gin (NIM) to record an av­er­age of 700 ba­sis points (bps) over 2016-2017—ver­sus an av­er­age of 380-400 bps his­tor­i­cally—tripling its net in­ter­est in­come and prof­itabil­ity be­tween 2014 and 2017, the re­port states.

The re­port con­cludes that such vol­ume growth com­pen­sates for NIM com­pres­sion, adding that the sus­tain­abil­ity of the afore­men­tioned low-cost funds would guar­an­tee con­tin­ued re­silient bal­ance sheet vol­ume growth.

As a re­sult, Bel­tone Re­search ex­pects a NIM com­pres­sion of 60 bps in 2018. How­ever, it fore­casts the bank will likely meet the EGP 1.5bn net in­come tar­get for this year.

HDB is 30% owned by the NUCA

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