The Daily News Egypt

Momentum in NUCA’s auctions to continue: Beltone Research

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

- 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
HDB is 30% owned by the NUCA

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