Contractual Savings Schemes for Housing (CSSH)

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Contractual Savings Schemes for Housing (CSSH)
an assessment of past experiences and current
developments

• Dr. Friedemann Roy
• Washington, 17 March 2006

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CSSH models in the world
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Mechanics of CSSH systems
Source Roy
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Why have CSH been implemented?

• Lack of long term funding instruments
• Limited access of young families and low-income
  household to mortgage finance
• No loan supply in areas without standard mortgage
  finance products (i.e. loans for
  renovation/modernisation)
• Broad mobilisation of savings

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Assessment on impacts and needed adjustment of
CSSH

• Analysis against the following criteria
• Liquidity management
• Regulatory issues of CSSH systems
• Institutional approach
• State support of CSSH
• Strategic role within the banking sector and the
  economy (housing finance systems)

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Liquidity status of CSSH portfolio with
multiplier of 1
Source Roy/Dübel
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Liquidity status of CSSH portfolio with
multiplier of 2
Demand for external financing
Source Roy/Dübel
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Regulatory issues of CSSH systems

• Embedded liquidity risk underlines need for
  regulation and supervision of CSSH
• Minimum content of a regulation on CSSH
• Definition of CSSH
• Relationship between customer and CSSH bank
• Risk Management/liquidity management, especially
  definition of contract parameters (multiplier,
  loan allocation criteria etc.)
• Supervision, licensing of CSSH activities
  (general license to conduct business and approval
  of new CSSH products)
• Regulation should be at least central bank
  directive
• Supervision, licensing and approval of new
  products should be conducted by central bank

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Institutional approach

• Especially in Europe, CSSH institutions often
  appeared as specialized institutions
• In other regions, CSSH were offered through
  banking system (e.g. Housing Provident Fund in
  China)
• Specialized CSSH Institutions in Europe have over
  time developed into specialized mortgage lenders
• Austria bausparkassen have started to offer
  regular mortgage loans to be refinanced through
  capital market sources
• Germany most of the bausparkassen belong to a
  group which offers other financial products (e.g.
  Deutsche Bank, Wüstenrot Württembergische etc.)
• Slovakia CSSH banks consider granting of
  mortgage loans without pre-savings requirement

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State support

• System implementation in Europe was regularly
  accompanied by saving subsidies
• Subsidization has often led to ambiguous results
• Czech Republic after 10 years of existence,
  loan-to-deposits ratio reached 28 (as per 2002)
• Hungary despite increase of saving subsidies,
  system will remain niche market segment (market
  share is 0.92 as per 2004)
• Slovakia in line with positive development of
  system, government has reduced subsidy amount
• Germany government introduced income thresholds
  to target subsidy to low and middle income groups
• In Asia, CSSH schemes appeared with no state
  support (e.g. India) or minimal state support
  (e.g. China)

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Strategic role within banking sector and economy

• Economy
• Stable or stabilizing inflation rates and
  confidence in banking sector is required
• House price and interest rate development may be
  impediment
• Banks
• Pre-screening and cross-selling instrument
• Customer
• Protection against interest rate rises
• Government
• Development of financing opportunities outside
  formal financial sector (housing micro finance
  product)

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South Africa linking CSSH to housing
microfinance approaches
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Conclusion

• Liquidity management of CSSH schemes should be
  aimed at balancing supply of savings and demand
  for loans
• Need for regulation with clearly defined contract
  parameters, supervision, licensing (best by
  central bank)
• Establishment of specialized institution should
  be left open to individual decision of financial
  service provider
• Introduction of state subsidies should be
  avoided. Alternative could be lower minimum and
  capital requirements
• CSSH as housing micro finance product may be well
  suited for funding steps in progressive housing
  process
• Identifying reliable borrowers
• Granting loans without explicit claim on property

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Dr. Friedemann Roy Bankakademie
e.V. Sonnemannstraße 9-11 D-60314 Frankfurt am
Main T 49-69 154008-622 F 49-69
154008-670 E-Mail roy_at_bankakademie.de