State housing banks aim to provide a financial service to market segments to which the market fails to deliver.
or informal income groups or to households
in rural areas, where commercial lenders
do not have networks, involves higher
origination and servicing costs, higher
risks, lower incomes and fewer crossselling opportunities. As SHBs have lower
profitability goals and because of their state
backing, they are seen as a natural substitute.
• Providing a useful policy implementation
tool. SHBs can react to instructions from
the state. For example, Thailand selected
housing as one of the drivers for economic
recovery after its 1997 economic crisis. It
created an SHB to channel below-market
mortgage loans to stimulate construction
and absorb excess housing stock. Similarly,
France used an SHB to provide subsidised
housing loans and varied the quantum
of subsidies available to either enliven or
dampen demand cycles.
WHERE SHBs GO WRONG
A striking feature of the vast majority of
SHBs is the frequency of bail outs and rescue
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operations in countries such as France, Brazil,
Indonesia, and numerous African countries.
The quantum of bail outs, compared to
on-budget welfare housing subsidies, has
been much higher. For example, the cost of the
Brazilian Caixa Economica Federal (SHB) bail
out in 2001 was $8 billion, which equated to
25 years of welfare housing subsidies.
SHBs are far more vulnerable than
commercial lenders are, due to poor risk
management/operational policy, administrative
weaknesses and the predominance of a
rule-based (as opposed to a risk-based) culture.
Specialisation can also increase this
susceptibility, as an SHB focuses solely on the
housing market. This may lead to excessive
exposure during property market downturns.
Other reasons for the failure of SHBs
include weak corporate governance and lax
management of credit risk. On average,
non-performing loans within SHBs range
between 20% and 30% of an overall loan
portfolio. In some instances, this is as high as
70%. On the other hand, private sector lenders
go into “corrective shock mode” when this rati