SPECIAL FOCUS
Should
South Africa
create a
state housing
bank?
There are numerous examples of countries creating
state housing banks (SHBs), some of which date
back to the mid-20th century. Most outcomes have,
however, been disappointing in terms of both financial
and social impacts. By Pierre Venter
IF GOVERNMENT
INTENDS THE SHB TO
BE A “MARKET MAKER”,
THEN ITS DESIGN
SHOULD MEET SOME
CRITICAL CONDITIONS
TO ENSURE IT
EFFICIENTLY FULFILS
ITS SOCIAL AND
ECONOMIC PURPOSES.
C
onfronted with “market failure”, generally the absence of adequate provision
of finance or an insufficient coverage of housing mortgage markets across
household income distribution, governments tend to choose interventions that
yield quick results, or are at least a visible sign of political will to implement
housing solutions.
The involvement of the state in market finance is often the backdrop for an
SHB. In some cases, the creation of an SHB reflects a specialist bank implementing a centrally
planned economic policy. This SHB model does not, however, offer an appropriate answer to the
issues underlying market failure. Like many other state-owned banks, SHBs often fail to achieve a
balance between conducting efficient and sustainable banking operations and pursuing social goals.
GLOBAL EXAMPLES
In Latin America, SHBs combined refinancing facilities, some regulatory powers and direct
lending. However, SHBs have for the most part not survived financial crises in their countries.
In Brazil, an SHB called Caixa Economica Federal is a hybrid of a development bank and a retail
bank, and is the largest mortgage lender in Brazil today. In central and eastern Europe, state-owned
savings banks have a large share of the mortgage market. These SHBs have evolved into commercial
banks competing in the open market with private sector banks. In some countries, state entities
combine retail housing loan services with real estate development, for example Thailand, Indonesia,
Pakistan, and Egypt. In Sub-Saharan Africa, where the commercial banking sector is small and
the mortgage finance infrastructure is only partially in place, there is now considerable interest in
establishing or revitalising SHBs in countries such as The Democratic Republic of Congo, Namibia
and Rwanda.
WHY SHBs?
SHBs attempt to provide an institutional answer to three types of relevant issues:
• Providing a financial service to market segments that the market fails to deliver to (to jump-start
the market), by acting as a pioneer in demonstrating the commercial feasibility of such lending.
• Catering for the needs of segments underserved by the commercial sector. Lending to lower ▶
Edition 12 | BANKERSA
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