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Realty boom, finance demand to benefit GCC banks despite challenges

05 Nov

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Exceptional growth in the real estate sector and increasing financing demand in the GCC countries have created valuable opportunities for banks and financial institutions but lenders are faced with operational challenges, according to a study.

The lack of specialised mortgage servicing, streamlined process workflows and use of technology as well as the non-existence of a rated servicing platform were challenging the financial institutions within the growing GCC mortgage markets, said a study by Capitas Group, a New York based firm with a track record of establishing Shariah-compliant specialty finance business.

The study highlighted the need for more developed mortgage finance laws and regulations that enforce foreclosures and delinquencies, while remaining sensitive to social norms and Shariah principles.

Other challenges for the GCC financial institutions include limited customer familiarity with credit products and mortgage origination processes, and lack of consistent property registration mechanisms that avoid the expense and time necessary to register properties.

“Financial institutions within the GCC must either invest in the development of core servicing expertise or support the development of servicing as an independent, third-party outsourced function that is shared by institutions,” it said, adding the demands placed on servicing entities have been on the rise.

The servicing entities’ role has been increasingly sought mainly due to the regional leniency towards delinquency; limited customer familiarity with mortgage products; underdeveloped payment processing mechanisms and limited availability of industry professionals.

Servicing, according to Capitas, was especially critical for GCC institutions that seek to sell mortgage assets to secondary market investors within the region and around the world. Cash flows associated with secondary market instruments, and consequently their ratings, would also be adversely affected by the inability to collect payments or effectively resolve work-out situations, it said, adding special servicing expertise was important to investors who remain concerned with potential losses due to borrower non-payment.

On primary servicing, it said credit education programmes and other preventive measures must be a part of the customer service offering. About special servicing, the report said institutions must rely on creative approaches to work-out situations. For master servicing, standardised reporting and surveillance methodologies have to be developed to enable investors to manage asset portfolios.

By Santhosh V Perumal, Gulf Times – November 4, 2008

 
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Publié par le novembre 5, 2008 dans Middle East

 

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