Central Bank buys about 60% of mortgage bonds from market

The Central Bank of Azerbaijan has purchased about 60% of AMF’s bonds from their holders in April, as the capital market was distressed following the devaluation of the manat in February 2015.

This was affirmed on Wednesday by Fitch Ratings in a message about long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB-‘ with the “Stable” forecast.

“This shows the willingness of the Central Bank to support the fund, if necessary. Fitch expects that the fund will continue to receive support from the Central Bank “, – the report says.

The central bank supports the liquidity of AMF’s bonds on the secondary market. The outstanding bonds accounted for AZN340m at end-2014 (2013: AZN300m) including AZN3m (2013: AZN9m) held by AMF in its own portfolio.

The proceeds from the mortgage bonds are designed to finance conventional mortgages and the social mortgage is provided by the state budget.

According to the agency, in the medium term, the annual contributions from the state in the AIF may rise significantly, but it will depend on the decision of the state to expand the program of social housing construction in Azerbaijan

At end-2014, the accumulated state contribution totalled AZN216m (2013: AZN176m) and in 2015 AMF expects to obtain an additional AZN50m.

“Fitch considers the entity’s integration into the general government sector is moderate. AMF has a separate budget and its debt is not consolidated in state debt. However, AMF significantly relies on government funding that it annually receives in the form of equity injections”, – the report of the agency says.

As the agency says, provision of affordable housing is a high priority for the state. This is underlined in Article 43 of the Constitution, which recognises the need to respond to the country’s housing demand. “Housing demand is high and is fuelled by growing population and urban development amid a high level of old housing stock and low rate of housing area per capita in the republic”, – Fitch analysts say.

AMF is a state institution that was established under the decree of the President of the Republic of Azerbaijan in September 2005. The entity acts as the government’s agent in implementing the state’s social housing programmes and supports provision of dwelling space to Azerbaijani citizens through long-term mortgage loan. AMF also contributes to the stability and development of Azerbaijan’s financial sector by refinancing mortgage loans of commercial banks and issuing mortgage-backed securities.

AMF operates under strong control and oversight from the central bank. The supreme governing body of AMF is the board of directors of the central bank. AMF’s yearly budgets and borrowing decisions are subject to the bank’s approval. The central bank also appoints AMF’s audit committee and external auditor. The state auditors monitor and control the use of funds allocated from the state budget to the entity.

A rating change would be triggered by changes to the ratings of the sovereign. Changes to the legal status and public control that would lead to a dilution of control or likelihood of support by the sovereign could result in the ratings being notched down from the sovereign ratings.

To date, there are 30 authorized banks of the Azerbaijan Mortgage Fund [in 45 banks are operating in the country]. The participants of the mortgage market are also 21 insurance companies [27 in total] and 16 appraisal organizations.

SOURCE: Azer News