Dr. Ali Al-Bahr: “The Housing Credit Bank is the Only Bank Which Gives Long Term Loans” [Archives:1999/29/Interview]
July 19 1999
The problem of housing is considered to be one of the major headaches of the people of Yemen, particularly those of low or fixed incomes. The high rent posed by the landlords on the tenants adds fuel to the difficulties between them. Therefore, constructing flats for the fixed income people is one possible solution. The Housing Credit Bank (HCB) is one of the major contributions in this regard. It does a lot to alleviate the problems of those with a fixed or low income.
Excerpts:
Q: What are the major activities and projects implemented by the HCB?
A: On this occasion, I think I should share with the family of the Yemen Times our grief and condolences. We are mourning with you at the passing away of one of the most famous and intellectuals persons in Yemen, Dr. Abdulaziz Al-Saqqaf. I would like to convey my condolences for the very sad accident. And I express my satisfaction at the work of his son Walid and the members of YT who I am sure will be able to continue the newspaper in the same path, and continue to move forward in order to keep the newspaper on the top of the media in Yemen.
The Housing Credit Bank, which was established in 1977, has two main lines of operation as you know.
The first one is to build the projects for the Al-Hasin, for the middle and low income groups of people. One the more important projects is the Hadda city where the bank constructed about 800 units, which were given to the beneficiaries. That was in 1984 and 85.
The second big project is the Suad Sawan, it is for the low income people, and it is a small city next to the Sheraton. We distributed about 800 units of housing there. We cooperated with the Ministry of Housing and Construction and other organizations to finance what is called the 7th of July city in Hodeidah for the limited income people. That city consists of 2,560 units. This is the 3rd project. We are planning to come forward with the United Nations and the Ministry of Organization and Construction to finance and run the financial arrangement of the project to the people of middle and low income in Aden. It is again called the 7th of July city in Al-Bureka. That will consist of 1600 units as the first phase. It is partially financed by UN. The United Nations has already contributed about $8 million. The bank will step in and arrange the financial side of the project, and they may need the bank managers to come and support the construction process as well. Again, we are negotiating about it. But we are about to start, and we are preparing ourselves to give money to that city. Among the beneficiaries, are, again, the middle and low income families who live nearby. So all in all it comes out to about 6 or 7 thousand houses. These were constructed directly by the bank, and in all the other lines of operations, the bank is involved in giving direct loans to the beneficiaries. So many people come and get around 400-500 thousands riyals. For limited income people, this is a lot of money.
The people are given the limited cost kind of construction where they are satisfied with 60, 70 or 80 square meters, that is good enough for them.
The second element is that it must be within the normal income to be repaid from their income. We can give up to 10 million or 20 million. But again, we take into account the capacity of the beneficiary or the borrower to be able to pay back the principle plus the interest.
From the beginning of the bank, we gave the loans to around 6 to 7 thousand families. Those people received direct loans and about 6 to 7 thousand of the people got the money or the lands from the government, who stepped forward to finance that. So our operators have in the order of 15 thousand houses that we have finance either directly or through projects, 15 thousand over a period of about 20 years. You can say that it is around 1 thousand houses per year.
Q: Can you tell us how much that would have cost?
A: Of this operations were in this order, I think I might have bought it from 3 to 5 billion Yemeni rials, and the total cost of the total contribution of the bank is on the order of 5 billion since we started.
When we look to the past, 1 thousand million is not the small amount it is today, but was about 2 hundred million dollars.
Taking the value of the currencies these days, 4 thousand million is only about 40 million dollars. So it is about 3 to 4 or 5 hundred million dollars if we take an average of the currency, which I think it is a good amount. We recently started what we call the commercial operation, which is the straight-forward market operation of the bank, governed by the law of the banks and the orders of the Central Bank and governor of the central bank. We are acting in the market like any other commercial bank. In other words, we accept the deposits from the public individuals and institutions with their private companies or corporations, they brought the money here to the bank as deposits and we have an interest infrastructure that is dictated by the central bank.
The most recent value of the interest is 20% for the saving accounts per year. We are paying our customers 20% for their saving accounts here. We partially invest this money in the government treasury bills. These are issued every Thursday by the central bank. That is the very important part of the activities of the bank, because this is the source of liquidity. And our assets are among the most liquid in the country. We are the only bank who gives long term loans, and we are the only bank who gave mortgage loans totally and exclusively. And we have also a set interest rate with our customers, because it is not easy for them to follow what we call it defloating interest rate whereby they change the rate whenever the central bank changes it. It is half for our customers, and it is legal. So we are quoting our set rate for 5 to 6 years, it is very difficult for a financial institution to deserve unless we are very careful, because the tendency of the interest rate is always to go high, and we are able to gave our customer a fixed rate for a period of 5 to 6 years. This is one of the advantages of the bank, and one of the special natures and special lines of business of the bank. We are probably the only group that does this type of financing in Yemen, it is what we call the mortgage finance.
We are very liquid, and we are not putting all the money in real estate and the inflationary resisting assets. You may have real estate buildings, or you may have good store in your all inventories, but again that is not liquid. There is a danger that we are facing, this is the deterioration of the currency. They probably are thinking to support our assets by adding foreign exchange into our port for you. We may use gold, we are thinking very seriously about buying 3 to 4 thousand ounces of gold. Every thousand ounces of gold costs about 45 to 50 million rials. That is a very strong safety net we should have. We are thinking seriously about adding to our assets one to three million dollars; we are thinking of adding five to four thousand ounces of gold that will cost again 2 or 3 hundred million rials. So we will be balancing ourselves in that way.
Q: What are the privileges the bank gives to the people who take out loans?
A: Well, from a legal framework there are no limits in the bank. We can lend to the contractors, the commercial buildings that go beyond hundred millions of Yemeni riyals and to finance the office buildings but the most needy people are the middle and low income groups, so we give them a special weight in our operations. This puts us as a retiring bank in the first place. We are deeply rooted in almost every quarter of the city of Sanaa and Alhodaida. We are seriously concerned about starting a bank in Aden, another one in Hadramout and a third one probably in the third cities between Taiz and Ibb. When it comes to the entighment to get the bulk money again this is limited not by the availability of their resources but by the capacity of the individual to pay back the loan and the interest in the period of six years. So if you assume that a man have the income of twenty riyals, we assume that he will pay have of that income as to the bank and half of his income will be spend on his other life requirements. So if we take ten thousand every month, we see that we will be walking through five years meaning sixty months and if we collect ten thousand every one month sixty months will put it about six hundred thousand, then we reduce the interest from that amount so the rest will be around four hundred thousand to three hundred thousand. If the interest rate goes down to 10% this can increase the total amount to eight hundred thousand. So it varies depending on the interest rate. Again there are no physical limits to the loans of the bank but the limiting factor is the capacity of our customers to be able to repay the loan with the interest. So it is a sort of moving and flexible mechanism, it goes up and down with every individual’s income.
Q: Concerning the retired people of the government what kind of facilities do you offer them?
A: There is a nother institution that deals with the retired people and they have also lots of resources. They have got around ten to fifteen billion riyals. We are very keen to have a project with them or to work together with them through the limited income and their pensions to get them small houses in cooperation with pension force but again they have their own strategy and of investment. We hope again that we will be able to make other projects with talented administrators of the fund. We give priority to the people who are holding saving accounts with us in the bank. We are very glad to give those who have saving accounts two, three, four, or even fifth times the amounts of their money.
Q: You know that the majority of the employees in the government have limited income. What kinds of facilities do you offer these employees?
A: They have the advantage of having permanent income from very well established ministries and institutions. This gives them a better guarantee and puts them on a very strong footing when they are competing with those who are working on their own or those who have part time job. So they have the advantages of the guarantees of their ministries because this is one of the first guarantees that we consider and look for to give the employee any amount of money he requires. A second element we give them a legal period of time and there is a rate prefercial, that is one percent which, I think, is not a big advantage because we give the non-commercial rate is one percent less than the commercial rate, the non-commercial rate is the size of the construction that does not exceed one hundred thirty two. We consider that to be non-commercial rate and we give them six years and one percent less. The commercial rate is built above and over one hundred thirty squiremets if he reaches one hundred fifty or sixty squiremets. The most advantage is the longer period of time we are providing and the fix rate we are giving because the interest in Yemen, like any developing country, the interest should always be going up. But we are gambling to give them a credit of ten years. People who borrowed from the bank in the second half of1998 they got an interest rate of 20% now the interest rate is about 28% and we are binded by the interests fixed in the contracts signed. The second advantage is the duration of the loan which is very long. We also limit our source to collect four or five thousand which extends the process for us.
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