Erste’s Romanian subsidiary BCR has joined the growing number of
banks in Central and Eastern Europe offering bauspar home
loan schemes, savings programmes which give access to a discounted
loan. William Cain examines a system worth €200
billion in Germany alone with current NPLs of just 0.03
percent.
BCR, Erste’s Romanian subsidiary, has launched a housing bank which
helps customers benefit from state bonuses on savings and
beneficial loan interest rates. The housing bank, launched locally
as BCR Banca pentru Locuinte (BCR BpL), is based on a similar model
to German bauspar products, in which customers are
contracted to make savings for 18-24 months to qualify for a low
interest loan. Bauspar, which translates literally from
German as ‘build-save’, is a concept used widely in Germany and
Austria as part of their building society sectors and is expanding
across Central and Eastern Europe (CEE) markets as foreign banks
like Erste, Raiffeisen International and UniCredit move in.
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BCR has been signing up to 1,000 contracts per day in Romania
since its launch, according to sources in Romania, suggesting it
would easily beat its conservative target of 50,000 contracts this
year. A BCR spokesman said the results so far had been
encouraging.
The bauspar system is a closed system which does not
rely on capital markets – loans are funded entirely from customer
deposits. But it is becoming increasingly popular among banks in
CEE both because of its impressive record on non-performing loans –
the average is just 0.03 percent – and government incentives to
savers.
The main bauspar countries are Germany, Austria, Czech
Republic, Slovakia, Hungary and Croatia. In Germany, the industry’s
balance sheet volume is worth around €200 billion, while in
Austria, outstanding loans total €40 billion.
While the technicalities of the product vary from country to
country – particularly with regard to the level of government
support – the basics remain the same. The bauspar system
links the savings process to the granting of a loan. It is
technically a contractual savings scheme, as consumers are
contracted to save for a certain period before being granted the
loan, to which they continue to make repayments. In most countries,
the state offers a savings bonus in the initial phase to
incentivise saving from low-income groups.
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By GlobalDataThe system is effective because it builds a credit record before
the loan is granted, proving the consumer is likely to be able to
make repayments on the future loan. This is particularly appealing
in emerging CEE, where customer data is less readily available.
In a typical contract, the consumer pays an up-front fee of 1
percent of the total contract sum. They pay monthly savings
instalments of around 0.5 percent of the total contract sum for a
minimum of 18 months or until 40 percent of the contract sum has
been saved. This phase usually involves a government premium
interest rate on savings.
In Romania, for example, Raiffeisen’s Banca pentru Locuinte,
pays out 4 percent in interest, and the government tops it up to
5.7 percent, up to a total of €150 per year. After the loan is
granted, the monthly redemption payment is usually around 0.6
percent per month of the total contract, with an average redemption
period of 11 years. Raiffeisen offers 6 percent for its loans in
Romania, with the government guarantee giving it a reasonable
margin.
A government subsidy
While a government subsidy has helped bauspar products
catch on in CEE, according to Andreas Zehnder, general manager of
the European Federation of Building Societies (EFBS), the system
works in Germany largely without the subsidy. Only individuals with
salaries of less than €25,000 ($37,000) are able to qualify for the
savings premium.
But Bausparkassen, the German building societies which
issue the product, make up around 35 percent of German mortgage
lending. The loans are most often used as a complement to a
mortgage product than as a home loan in their own right. Usually,
bauspar funds make up 30 percent of the purchase price of
a home, with the rest of the loan granted by a more traditional
mortgage and deposit.
Zehnder said Russia and some South American countries were also
looking at introducing the product.
“It is a more stable form of housing finance than the high
loan-to-value mortgage lending we have seen in other countries,”
Zehnder adds. “People have to show they have the ability to save
money to qualify for the loan.”
Despite the popularity of bauspar in CEE, Adrian Coles,
chief executive of the British Building Societies Association (BSA)
said he thought it was unlikely the product was viable in countries
with mature housing finance markets like the UK or the US.
He told RBI: “It is a fairly inflexible scheme as I understand
it. Quite how you could offer a fixed rate on savings over a
certain time period and grant a fixed rate loan at some point in
the future… there would be all sorts of financial risks.”
BCR Banca pentru Locuinte’s product in Romania is structured to
fund home improvements or other purchases rather than full home
loans. A bank spokesperson said this was because the product is not
as appealing to customers when real estate prices are rising
rapidly, as they have been in Romania.
The bank said the product should work well in the market because
it will compete with consumer loans which typically charge high
rates of interest. Bauspar products can offer rates priced
600-800 basis points cheaper than other loans because of the way
they build customer data before issuing the loan. Consumers also
like the product because if they enter into a housing bank contract
they qualify for a 15 percent state bonus on savings up to a
maximum of €150.
Martin Skopek, retail vice-president at BCR, and chairman of BCR
BpL, said: “BCR is bringing to the market a product that will help
a broad base of customers. Romanians really need such products as
those provided by BCR BpL. A recent survey shows 70 percent of the
people want to improve their housing conditions.”
