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							UCB Approach to New Markets
  World Bank Group Housing Finance Conference
        Washington DC March 15-17, 2006




                               Jean-Christophe Steven
                                                        1
 Contents
• UCB Presentation

• Building new markets
• Today’s new (emerging) markets…
• … An opportunity for UCB
• Two case studies: Turkey and Morocco
• Challenges UCB faces
• Conclusions

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1. UCB Presentation




                      3
   A Housing Finance Specialist
• Founded in the 1951 post-WW2 France under
  reconstruction…

• …to help the process by financing main,
  secondary or investment residences, UCB is a…

• …wholly-owned subsidiary of the BNP Paribas
  Group and the Housing Finance business line
  flagship of BNP Paribas International Retail
  Financial Services

• UCB markets its products B2B through a network
  of business referral partners (e.g. Brokers, Realtors,
  Construction Companies and Property Developers) 4
   International development

• UCB is the only French Housing Finance
  specialist with an international network, incepted
  in 1986...

• …and presently comprising 8 units in France,
  Spain, Italy, Portugal, Greece, Norway, the
  Netherlands and Belgium

• We open UCB Switzerland in June 06 and 5 other
  projects are taking us, inter alia, to Turkey and
  Morocco .

                                                      5
 Global Data Bank

• 55,000 new customers per year

• Euro 10.8 Bn new loans in 2005 (+34.1%
  over 04)

• As at Dec 2005, Euro 27.8 Bn loans
  outstanding (+23.6% over 04)

• 2 500 employees



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2. Building new markets




                          7
  3 Development Phases
• 1951: France as a country under reconstruction
    – French State sponsored market organisation
    – Dominant State-owned players
    – Subsequent gradual liberalization

• 1989: France as a fully liberalized country in an integrating
   Europe.
    – UCB internationalizes itself, with low growth at home
    – 1989: preparation for first subsidiary in Spain…
    – …followed by Italy (1989), Portugal (1999), etc, etc.

• 2002: France in the Global Economy
    – Core European network consolidation (The Netherlands,
      Norway, Greece, Belgium, Switzerland and Germany)
    – … with assessment of emerging markets in Eastern Europe
      and the South Med.
                                                                  8
       Methodology of expansion
• No preset roll-out model:
   – Draw on past experiences to adapt to new places
   – Strongly support new businesses
   – Operational autonomy of mature subsidiaries
   – Cross-fertilisation between UCB businesses wherever
     beneficial (IT, marketing, process)
   – Leverage on BNP Paribas Group international presence

• Models toolkit:
   – Northern Europe Model (Brokers referrals)
   – Southern Europe Model (Realtors referrals)
   – Post-war France Model (Construction Companies referral)

• Achieve a realistic and sustainable local market share
  depending on market dynamics (Do not overreach)
                                                            9
    New markets features (1)
•   Macroeconomic Imbalances…
    – Currency volatility challenges foreign investors
    – High Interest rates
    – Limited primary liquidity and almost no secondary
    – Significant budget deficit ratios

    … require Multilateral Financial Institutions to
       assist in addressing the situation with
       suggestions for:
    – More flexible exchange rate regimes
    – New practices in financial markets
    – New frameworks, laws and regulations
    – Monetary policies and inflation targeting

•     …and to look for the contribution of Housing
    Finance specialists
                                                          10
    New markets features (2)
•   Socioeconomic Imbalances such as
    –   Dwellings deficits
        • Qualitative in Eastern Europe
        • Quantitative and Qualitative in the South Med Rim
    –   Housing Loans Limitations
        • Housing Loans with shorter term
        • Limited Loan Products range
        • Low mortgage debt ratio: between 1% and 15% (1% in
           Turkey, 4% in Poland, 8% in Morocco, 11% in Jordan,
           12% in China)

•   Strong demographic growth and a very young
    population
    –   Fast paced and recent urbanization, at the expense of
        space control (Currently 40% of less developed countries
        residents live in urban areas. It is expected that 60% of the
        world population will be urban by 2030, and that most
        urban growth will occur in less developed countries.)

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3. Today’s new (emerging)
markets…




                            12
 UCB Three Criteria Model (1)
We regularly run a model blending about 200 indicators to track:

• Attractiveness, with respect to:
    – size
    – profitability
    – growth

• Accessibility in terms of:
    –   refinancing
    –   costs of starting up
    –   synergies with the BNP Paribas Group
    –   competitive environment
    –   specificities of the country

• Risks, the cornerstone assessment of :
    –   regulatory risk
    –   solvency risk
    –   market risk
    –   country risk
                                                              13
  UCB Three Criteria Model (2)

• In-depth Reviews and Country Committees ensue …

• …To sort countries, as per today’s data, according to 4
  categories:
   – Priority countries
   – Accessible countries
   – Attractive countries
   – Country to further assess
• Dynamic forecasts are also run to envisage future trends:
   – And this process can change countries status




                                                            14
  UCB Three Criteria Model (3)

• Our housing finance model is overall providing positive
  views for emerging markets. Worth of note:

• Hungary:
   – A slowing down of the loans growth, albeit at a high
     level (30 % a year vs 80 % over 2000-2004 period)
   – Stable margins at high level
   – Development of refinancing by mortgage bonds
     (mainly covered bonds)

• Russia:
   – Very strong loans growth (about 85 % a year
     between 2000 and 2004)…
   – …supported by the Government that should
     implement in 2006 a support package for our industry
                                                            15
 UCB Three Criteria Model (4)

• Algeria
   – A relatively small market compared to its neighbours
     (Morocco, Egypt, Tunisia) but a very important potential.
   – Improvement of market conditions: new banking law
     (2005), computerization of land registries, mortgage
     finance trainings for the main market players.

• India
   – Growth of outstanding loans remains at a high level (40
     % a year between 2000 and 2004, outstanding as at
     2004 : US$ 26 Bn)
   – A favourable legal environment
   – Decrease in interest rates (from 15% in 1999 to 9% in
     2005)
                                                               16
4. An opportunity for UCB




                            17
 Why we have to be there?
• Important structural reforms happen now in many
  emerging markets:
   – We can provide to local regulators our views on practical
     solutions for issues encountered in many different
     countries

• We want to share with local partners best practices
  and skills
   – Win-win strategy locally
   – Gradual integration strategy globally

• Also, risks being higher we can enjoy:
   – Higher margins and…
   – Synergies with the International Retail Banking and
     Financial Services core business lines of BNP Paribas
                                                                 18
  Optimism about the future
• Given its linkages to land, construction, and labour
  markets, housing finance is key to economic growth
  and at the forefront of Governmental Policies and
  Planning everywhere.

• Mortgage markets have grown at very strong annual
  rates and construction activity is booming with no signs
  of crash landing

• Emerging countries offer significant opportunities for
  the following reasons:
   – Falling interest rates, tax incentives and healthy property prices
     have increased the affordability of housing loans and the desire
     to be part of the virtuous circle.
   – Increasing incomes will lead to increased demand for housing
     finance in urban areas.
   – Rapid economic growth has led to urbanisation causing the
     demand for housing to soar.
                                                                      19
  How to enter these markets?

• Carefully review conclusions of our internal Three
  Criteria Model : Turkey and Morocco stood out as
  desirable countries.

• Respond to BNP Paribas local partners’ requests
  for UCB presence, TEB in Turkey and BMCI in
  Morocco, to provide our intermediaries marketing
  expertise.

• Take strategic decisions about what categories of
  intermediaries to market.

• Meet representatives of the chosen target
  intermediaries in all key cities
                                                       20
 Turkey (1)
• A young and dynamic population of over 70
  million, 65% less than 30 years old
• A fast developing country with an average
  growth rate of 7.5% per year in 2002-2004
• A macroeconomic stabilization with a virtuous
  circle of:
  –   Lowering inflation expectation (7,9% in 2005)
  –   And falling real interest rates (≈ 14%)

• Many Banks push into mortgage finance
• Most middle and low income families cannot
  benefit from housing loans because they are
  still too costly
                                                      21
  Turkey (2)

• The developing strategic shareholding pact with
  TEB provides UCB with a gateway into one of the
  largest countries in Europe population-wise…

• … at a time when Turkey has just embarked in a
  convergence scenario with the EU supported by
  strong performance in terms of growth, inflation
  and interest rates.

• Moreover a new « Housing Finance System » law
  will, within months, accelerate the expansion of a
  mortgage financing market currently taking off
  briskly.

                                                       22
  Morocco (1)
• Macroeconomic stability with
   – Low inflation: average 1,5% for the period 1999-2004
   – The external current account has been in surplus since
     2001
   – Growth: 5,5% in 2003 and 4,2% in 2004

• Important lack of housing units
   – In 2005, the deficit is stable at 1 240 000 dwellings
   – Underdeveloped Realtors sector

• A dynamic housing loans sector
   – Decrease in interest rates (from 12,5% to 7,5%)
   – Housing loans outstanding reached 8% of GDP in 2004
     against 3% in 1995
   – With a 25% growth in outstanding in 2005 (5,4 Bn euros),
     the market is already in a booming trend. But the potential
     of development remains important, since only 20% of the
     population is holding a bank account.                    23
 Morocco (2)

• UCB approaches Morocco as a springboard for the
  Maghreb, a region comparable to Turkey
  population-wise.

• Due to its economic stability (controlled inflation,
  low interest rates) and its tight links with Europe…

• … Morocco is a neighbour country with good
  mortgage finance potential…

• …through a construction companies/ developers
  referrals marketing strategy.
                                                         24
 Difficulties in emerging countries:
 challenges UCB has to face (1)

• Underdeveloped financial systems
   – Lack of long term debts instruments and other funding
     issues
   – Securitization of mortgages proves difficult

• A still unstable legal environment
   – Land tenure, property rights and the legal process can
     be significant impediments




                                                       25
 Difficulties in emerging countries:
 challenges UCB has to face (2)
• A limited access to housing finance
   –   Inadequate supply of trained professionals
   –   New products framework difficulties (PEL in Morocco)
   –   Maturity of loans is often too short
   –   Lack of sound information on the actual exposure of
       individuals to debt

• Crisis triggers and early warning indicators
   – Economic crisis: unemployment, lower housing values,
     external shock
   – Delays in coming up with new prudential lending standards
     and regulations
   – Ineffective foreclosure (delays, appeals, adverse judiciary)
   – Late payment and default statistics
                                                              26
  Conclusions

• The current period appears to be a historic high point in the
   Housing Finance industry history

• UCB and its parent, BNP Paribas, recognize the many
   opportunities offered by these conditions and…

• …will make increasingly available its expertise and financial
   capacity to our industry….

• …especially in the Emerging Markets.



                        Thank You For You Attention
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