Lebanon could be the next country to be won over to the joys of mortgage securitization if efforts of European bankers pay off.
Leading the banking charge is Brussels-based Fredell & Co., whose Ola Nilsson and Jan Severa, were in Beirut recently to meet with government and banking officials, including Emile Lahoud, the Lebanese president. "My feeling is that they know that they need securitization and that mortgage securitization, in particular, would bring many benefits," Nilsson said.
Nilsson is convinced that Lebanon could prove fertile ground for MBS particularly after the passage of a new law governing the financial sector that is currently before parliament and is expected to be ratified in the near future. The new law is not specifically aimed at facilitating securitization but it will create a clear legal environment.
Nilsson is hoping that the government will be
convinced not just to allow individual mortgage-backed deals, but that it will mandate Fredell to
establish a state level mortgage finance system, with securitization at its heart, resembling the model that the securitization boutique established in Belgium
to arrange securitized mortgage finance for state-owned social housing institutions called Vlaamse Huisvestingsmaatschappij.
The scheme would allow local commercial banks to write eligible mortgages, which would then be purchased by a central institution and when a reasonable volume is reached (perhaps around $100 million) a securitization would be sold in the local capital markets.
Such a scheme would raise finance without increasing government borrowing (which currently stands at 115% of GDP). "Housing is one of the most important of a government's responsibilities and this is a way for them to increase housing finance," Nilsson said, adding that MBS would also allow banks to match long-term mortgage lending with longer-term financing than is currently available.
If he gets the go-ahead, Nilsson hopes that the project could be up and running as soon as summer next year.
Independent economist Marwan Iskandar - the publisher of a respected annual report on the Lebanese economy - welcomed the possibility of mortgage securitization as something that would address the stagnation in the housing market. Because of the lack of affordable housing finance and over-investment in construction between 1993 and 1996 more than 200,000 apartments worth around $7 billion remain unsold, he said.
However, Fredell may not have the market to itself, as other Western banks have also been in Beirut during the last year, talking to Lebanese banks about mortgage securitization. For instance, market rumors suggest that Deutsche Bank has shown most interest and is working on projects.
Nilsson added that Lebanon also has potential as a market for infrastructure securitization projects including a possible financing of the expansion of port facilities at Saida and that Fredell & Co. plans to open a Beirut office in the near future.
Western banker's activities in Lebanon are further confirmation that the Middle East is becoming the latest growth area for asset securitization, though bankers stress that it is still very early days. In Israel several banks are examining MBS deals, including possible internationally-placed transactions, while activity is also hotting up in Egypt and other North African countries.