Fitch Ratings has affirmed Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB+' with Stable Outlook, Trend reports with reference to Fitch Ratings.
The affirmation reflects Fitch's unchanged view on the fund's strong link with the Republic of Azerbaijan (BB+/Stable). Under its Government-Related Entities (GRE) Criteria, Fitch applies a top-down approach and views the government's ability and willingness to provide support to the fund as very high. Based on the assessment of strength of linkage and incentive to support Fitch has equalized the fund's IDRs with those of Azerbaijan irrespective of the standalone credit profile (SCP).
The state-initiated expansion of the fund's activity beyond mortgage operations to supporting small and medium-sized enterprises (SMEs) further enhanced the fund's strategic importance in implementing the state's socio-economic objectives.
Since its inception the fund has continuously received different kinds of support from the state. This includes annual capital injections, transfers from the state and central bank's buy-back guarantee on its bonds. The latter implies central bank's obligation to buy back the fund's bonds from bondholders on their request. The fund also enjoys indirect support, which includes low-cost funding, exemption from income tax starting from 2019 and use of profits gained from the operations at its disposal.
Fitch expects the fund will continue to benefit from ongoing state support over the medium term, given expansion of its activity both in its traditional segment of providing affordable housing and in new operations covering guarantees and subsidies on loans to SMEs.
Fitch views the fund as a strategically important entity in implementing the state's policy of providing affordable housing to the population. The fund is the only state entity that provides subsidized mortgages in the republic, and has no substitutes for provision of mortgages in a weak national banking sector.
Being a state agent in implementing the national housing policy, it channels low-cost funding to the mortgage market, thus making mortgage loans affordable to the population.
The fund is the third-largest participant of the domestic bond market after the Finance Ministry and the Central Bank.
The fund plays a critical role in state housing policy by providing the republic's population with affordable housing through long-term mortgage loans at below-market rates. In 2018-2019, the fund worked on implementing a rent-to-own program, which is aimed at buyers with insufficient funds for down-payment or those who are not eligible for a mortgage loan. The program will be available to the public later in 2020.
Although the fund is a non-for-profit organisation, it has been profitable since its establishment.
According to the fund, the return on its capital in 2019 was 3.8 percent, while assets equaled to 1.9 percent.
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