SAUDI ARABIA - Finance
CEO, Saudi Real Estate Refinance Company (SRC)
Fabrice Susini was appointed CEO of SRC in 2017, following the establishment of the organization. Before that, he was global head of securitization at BNP Paribas. Based in London since 2000, he managed teams in New York, London, Paris, Milan, Hong Kong, Tokyo, and Brussels and was involved in structuring, evaluating, trading, and managing ABS and structured securities. Before joining SRC, he initiated an SME alternative lending project with BNP Paribas Asset Management. Susini holds an MBA from the London Business School, a master’s degree in finance from the University of Dauphine Paris IX, and a degree in law from the University Nanterre Paris X.
Fabrice Susini, CEO of Saudi Real Estate Refinance Company (SRC), talks to TBY about the Saudi real estate market, Vision 2030, and market education.
How would you assess the current status of the Saudi real estate market?
Fabrice Susini: There are several ways and key elements to look at to assess the market. Looking at the report published by SAMA covering July, we see that the market is slowing down despite a pick-up in June. But this slow down must not hide that the mortgage market has grown steadily and fairly significantly since the end of 2019. Looking at the numbers on a monthly basis puts things into perspective: for example, we produced around 9,000 mortgages this month (July) globally, which is low compared to the amount in 2019, 2020, or 2021. However, the market is still dynamic, even though it is at a slower pace compared to 2020 and 2021: 9 to 10,000 mortgages for a month represents one-third of the whole number of new mortgages produced in 2017 and still more than one-fifth of the whole number of new mortgages produced in 2018—4 years ago! But this slowing of the speed at which mortgages are produced is healthy. It means banks, borrowers, and players in the market are not moving at breakneck speed. Borrowers are taking their time to apply for the mortgage they really need or want, and banks are doing the same to make sure the mortgages they are granting are appropriate and affordable. Secondly, when you look at the level of profit margin at which mortgages are offered to borrowers, the average rate has decreased from around 7.5% in 2019 to below 5% now. Conditions have improved for the borrowers. Finally, delinquencies remain quite subdued. So even if the average size of mortgages has increased, it is more evidencing the dynamism in the market than a darker evolution.
How is SRC supporting the government to achieve its targets set with Vision 2030?
Fabrice Susini: We are one of the enablers for Vision 2030 as far as housing is concerned. We contribute to the objective of 70% ownership for Saudi borrowers beyond the financial sustainability of the company by focusing on the secondary market. That means refinancing mortgages, providing liquidity to primary originators but also focusing on affordability, and making sure our product makes sense for Saudi citizens. Vis a vis the primary originators we support (the banks, the finance companies), we channel liquidity and balance sheet solutions. The way we supported Vision2030 is vindicated by the deployment of our balance sheet in support of the primary originators: SAR 6/7bn in 2020, SAR 12.5 Bn in 2021…SAR 22 Bn expected in 2022. But we also focus on the affordability. Our mission statement is to make sure mortgage is as affordable as possible for borrowers and suitable in the long run. That is why we developed the long-term fixed rate (LTFR) in 2018. It was a proposal to banks highlighting that we wanted to prioritize the refinancing of long-term fixed rate mortgages. Affordability is a key element for us. At the same time we pushed down the margin for the mortgages we would refinance. Volume goes alongside affordability in our mind. Finally we supported qualitative elements including standardization, transparency of the product, and finally education to ensure we are aligned with the objectives of the government.
What emphasis are you placing on the concept of market education, and how are you working to instill and spread awareness among your products and activity?
Fabrice Susini: There is a need to create greater awareness around the mortgage product in the Kingdom. Looking at our “constituents” behind the FI, a mortgage is the biggest investment decision most people will take in their lifetime, though strangely enough it sometimes involves not that much consideration or research comparison, and so on. That is something we wanted to change because of the implications of mortgages and what they mean for a buyer and their family in terms of cost, constraints, and liability of operating. Explaining financial products was not necessarily what Saudi citizens were looking at before. We want to make sure customers are really taking the decision for their own benefit. But that’s only one side of the problem we are tackling. Through many contacts with investors in the region and internationally, we have realized that there is a great deal of interest in the Kingdom and its mortgage market in principle; however, there is little in terms of knowledge or understanding of its features and technicalities. And its quality too.. We have a fantastic story to tell. As a conclusion, we are fully embracing communicating internally vis-à-vis borrowers as well as externally and progressively vis-à-vis international investors and FDI.
How much is the company expanding in the fields of fintech and digital mortgage origination?
Fabrice Susini: There is a tremendous push across the Kingdom to develop all and every kind of initiatives that are technologically enabled. There are many discussions about fintech. Then, there is branch banking, which has become a different process in markets like the US, some countries in Europe, or Asia. We still have predominantly a traditional banking process, though there are ripples of change coming. Not many young people today will go to a branch for a banking transaction, and young Saudis are no different. The writing is on the wall; it is just a question of timing so logically we have started looking at efficiency, convenience, and better experience for customers the technology could bring. From our perspective, digitalization is taking two shapes. First, we have embraced digitalization, though more on the operational side. It combines with the task we have been entrusted with by the regulators to develop connectivity systems for the market, which will allow us to exchange through a secure and more convenient way, information on loans, transfer data, treat data, and acquire portfolios. This will have its natural extensions “internally,” facilitating portfolio management and reporting, accounting operations, etc. We expect to deliver by 2023. Second, there is also a client facing, loan origination digital process. As a “refinancer” supporting any regulated or accepted primary originator, we scrutinize initiatives and are ready to play our role.
What are the key priorities and targets for SRC for 2023?
Fabrice Susini: We engaged with all significant originators in 2022 and expanded our sukuk program. So for 2023 we want to continue to develop our balance sheet and stimulating engagement with originators. It is partly business as usual with additional features or tweaks that are needed to address the developing strategies or new needs of the partners we are engaged with. At the same time, we want to continue to develop a few products to broaden the scope of the solutions we provide. Whether by adding options to the financing and funding we provide or by focusing on hedging solutions that we could make available for originators. At the same time we are also focusing on diversifying our access to liquidity. We have increased the size of our domestic program. We are pushing to be in the international market as soon as possible, targeting international investors. We also work with various stakeholders on laying down the foundations of structured finance products to broaden the meeting points between the primary market and FDIs whilst allowing the KSA capital markets to diversify and expand.
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