Venezuelan Government Increases Banking Sector’s Obligation to Fund Construction and Mortgages

Mérida, 15^th February 2013 (Venezuelanalysis.com) – The Venezuelan government has increased the banking sector’s financial obligation to fund construction and provide low interest mortgages as part of policies to broaden access to affordable housing.

The financial obligation, known as the “mandatory mortgage portfolio”, requires both state-owned and private banks to assign a percentage of their gross annual loans toward housing construction and controlled-interest mortgages to low income Venezuelans.

It is an important means through which Venezuelans are able to get affordably priced mortgages or loans for housing construction.

The government announced on Wednesday that the mandatory mortgage portfolio was to be increased from 15 to 20%.

With the change, the portfolio is expected to raise around 80.4 billion bolivars (US $12.8 billion), of which 65% must fund housing construction, 30% go towards mortgages, and 5% for self-construction, housing improvements and extensions.

The percentage of the fund destined toward mortgages has increased 4% from last year, with the president of Venezuela’s National Housing Bank (Banavih), Mario Isea, explaining that the move is aimed at “increasing the people’s access to mortgages”.

Further, the head of the government’s Housing Commission, Rafael Ramirez, reported that the funds raised will be important for achieving the government’s goal of constructing 380,000 new homes in 2013.

Venezuela has long suffered from a structural shortage in housing, something President Hugo Chavez’s government is attempting to remedy through a mass housing building program, launched in 2011.

Over 300,000 new housing units have been constructed by the program so far, with the aim being to construct as many as 3 million by 2019 to end the country’s housing deficit.

Officials also confirmed that mortgages granted under the mandatory mortgage portfolio will continue to have their interest rates regulated; at 4.33% for those earning between one and four times the monthly minimum wage, currently at 2,047 bolivars ($325), and 10.66% to those earning between eight and fifteen times the minimum wage.

The government also announced that for the first time mortgages granted to wealthier Venezuelans, those earning over fifteen times the minimum wage (30,712 bolivars / $US 4875), would also be legally capped, at 16.4%. Officials claim that banks had been charging speculative interest rates to this sector, at an average of around 24%.

Speaking in an interview with public channel VTV, Isea responded to concerns that forcing banks to put such a high percentage of their credit toward construction and low-interest mortgages would threaten their stability.

Explaining the government’s continued increasing of the mandatory mortgage portfolio, he said, “We went from 10% to 12%, 12% to 15%, and now to 20%, even last year when demands for loans increased and some in the banking sector said we were going to put their liquidity at risk, which didn’t happen”.

“They (the banks) have very high profits and a great deal of liquidity that they must invest, and we knew they could support the increase,” he continued.

Isea further argued that the government had calculated the controlled interest rates for mortgage lending carefully, and that “there’s no reason this year that banks can’t fulfill their obligation”.

He added that if any bank did not fulfill its contribution to the fund, the state would take the corresponding legal actions.