Mr. Ch.Gankhuyag, Vice Minister for Finance, shares his opinion on the recent development of the Government plan for housing and its funding solutions.
Q: The Government decision of shutting down the Housing Finance Corp. (HFC) is masterminded by Vice Minister for Finance. Some say that secret owners and former executives of commercial banks are Cabinet Members now whom supported such decision. What would you say about it?
Ch.Gankhuyag: Principally, the Housing Finance Corp. was established to implement the state support in its people to solving their housing issues. It has been operating for 5 years already. But as for today’s standpoint, it is necessary to make function of HFC clearer in order to involve people without apartments into the housing program. I think that the Government plans to implement this work, but not just shutting down. As for the hearsay, it is not true. Yes, I was working for a commercial bank. But I think it is not the issue of professional background but policy issue, whether the Government build houses itself and provide direct loan to people or not. The main question is that is it better to impose workable policy and to establish structure based on the realization of our budget and capacity or not.
Q: Don’t you think that the Government’s decision to issue bond of ₮300 billion, in order to implement program of “Household for 100,000 families”, urged greed of commercial banks? Can’t commercial banks draw this fund to themselves with existence of HFC?
Ch.Gankhyag: If someone talks like this, then it is total misunderstanding.
Q: Why, it can’t be the alternative?
Ch.Gankhyag: Because the previously issued Government bonds were bought only by commercial banks, providing fund to the long term loan implemented by HFC. Therefore, source came from commercial banks. Also commercial banks provided the most of the loans to the construction companies. Over 25 thousand families solved their housing issue through the housing loan at commercial banks. It is big number.
Q: How much mortgage loan was provided for how long?
Ch.Gankhyag: Basically 25,000 mortgage loans with term of 10-15 years reached to public. Using this fund, prior to and after the economic recession, the construction companies built the apartments for the people. Shortly, commercial banks worked hard in building long term housing loan resource. But the Government needs to develop many fields such as the capital market and infrastructure availability in order to increase housing supply and accelerate the process.
Q: You mentioned about making clear of HFC functions. What does it exactly mean? The Cabinet Secretary said that it will implement re-structuring.
Ch.Gankhyag: The Government shall initiate works to facilitate loan with interest of 6% per annum to everyone, not only to state servants and officials, starting from those who need apartment desperately. It can be understood that this clearance will be made on the Government involvement in this regard.
More clearly it can be said that what would be the Government and HFC involvement in providing long term loan with less interest rate. How much fund shall be allocated in the state budget in order to decrease the interest rate, shortly it is all about subsidiary scheme. The Government will make decision how to implement such scheme. In addition, representatives from NDIC, Ministry of Roads, Transport, Construction and Urban Development, Ministry of Finance, Mongolbank, HFC, Mongolian Ipotek Corp. made joint prospect. Now it is important to deliver schedule in their efforts. The Government is going to issue a decision to provide housing not only to the state servants and officials, but to public. In order to achieve such important goal, the institute with professional HR, official approval from the state organizations, and full power to claim its loan interest and deposited real estate.
Q: Can HFC meet with such requirements?
Ch.Gankhyag: According to the law, an institution with appropriate license shall deal with banking business, both in the Civil Law and Banking Law. It shall receive license from Mongolbank and FRC and has capable management team and HR. This standard is being followed everywhere.
Q: So Commercial banks meet with this requirement right?
Ch.Gankhyag: Other NBFO (Non-Banking Financial Organisation) and Savings and Credit Cooperatives can be included in here.
Q: Mongolian Ipotek Corp. (MIC) can meet these requirements then?
Ch.Gankhuyag: MIC was not established to provide direct loan. It hasn’t been giving loan to anyone, but it is an institute to create circulation through buying of loan packages and re-selling it to the secondary market. But now it is taking about providing direct loan. In this case, there will be many issues needed to be considered such as interest calculation, depositing secured estate, clearing, risk and reserve fund and tax. Also, according to the law, who will get the right to provide loan.
Q: Difference between interest of HFC and commercial banks are huge like 9% per annum. Will this gap be filled by the taxpayers’ money?
Ch.Gankhuyag: The State issued several bonds in the past allocating certain funds in the budget through HFC and commercial banks. In order to pursue its policy, it has been utilizing the taxpayers’ fund. It is the role of the state. Now, we are talking about to modify and improve this policy. This new structure and scheme shall be approved by the Cabinet Meeting. In order to form the system, the arrangement for MIC, in raising fund from the secondary market (capital market/Stock exchange), shall be created immediately. Otherwise, this subsidiary still exists and will exist in the future. Hence it is important to implement policy to encourage demand in this sector. In order to encourage the demand, block in the money supply is being removed. Recently, MSE management issue was solved. When MSE operates openly and transparently, bigger investment funds will settle in Mongolia. Alongside, if Health Insurance and Social Insurance are reformed and insurance companies are allowed to invest in, an opportunity to attract long term and reliable fund from the domestic market to the construction sector will be formed.
In other words, the current system is all about drawing commercial bank funds to HFC through Government bond and when HFC places it back to commercial banks. What we are thinking about now is that the Government takes funds from commercial banks with condition of paying back. The state is trying to form the system of providing long term soft loan to its people through creating workplaces and encouraging labour.
Q: So what is the role of HFC?
Ch.Gankhuyag: As for HFC, it is going to regulate and coordinate the procedure. In other words, it will monitor the process, such as building infrastructure and planning new districts in certain areas. Its main role is to secure appropriate utilization of the subsidy to the target people or segment. The state shall not be the place to build houses or buildings. HFC is just a LLC with involvement of local authority and Government: 51% is to Ulaanbaatar City, 24.5% is to the Ministry of Finance and 24.5% is to the Ministry of Roads, Transport, Construction and Urban Development. This company was established to implement “Housing for 40,000 Households” Program. Due to certain conditions and problems, this initiative lacks progress. This shall be intensified and it is necessary to form the condition of providing housing for 100,000 households. But the whole budget can’t be provided by the budget (tax income). Therefore, we concentrate on the solution based on the market economy mechanism.