Uzbekistan is preparing to introduce mortgage-backed securities (MBS) and covered bonds in a move that could reshape the country’s capital markets and housing finance sector. At a roundtable hosted by the National Agency of Prospective Projects, in collaboration with the International Finance Corporation (IFC) and Moody’s Rating Agency, local and international experts discussed the necessary legal frameworks and reforms to enable the launch of these financial instruments. The discussion centered around the growing demand for housing, the importance of investor confidence, and how these changes could attract foreign investment to Uzbekistan.
Addressing the Need for Housing and Capital Market Growth
“The issue of providing housing to our rapidly growing population is becoming a priority,” emphasized Vyacheslav Pak, First Deputy Director of the National Agency of Prospective Projects. He stressed that new mechanisms for financing housing, such as mortgage-backed securities, would not only provide resources for commercial banks but also contribute to fulfilling Uzbekistan’s housing needs. “The introduction of these securities will help address the housing shortage while also creating more opportunities in the financial sector,” he said.
Pak outlined the progress being made toward building a strong legal foundation for these instruments. “We have drafted a law on capital markets, which includes provisions for securitization and mortgage-backed securities, and we are preparing a Presidential decree to establish the legal framework for mortgage-backed securities in Uzbekistan,” he explained. This, according to Pak, is part of a broader effort to create long-term financing solutions and support government housing programs.
Expert Insights on Legal and Regulatory Frameworks
Anjelica Shkulakova, representing the International Foundation for Development Cooperation, highlighted the significance of this event and the progress that has been made. “Our experts have worked for several years on developing a mortgage market framework for Uzbekistan, and as Vyacheslav Yurievich mentioned, we are providing expert support on regulating mortgage-backed securities and covered bonds,” she said. Shkulakova acknowledged the contributions of international partners, particularly Moody’s and the IFC, in shaping the legislative process.
Shkulakova also emphasized the importance of aligning the project with international best practices. “Today, our experts will make recommendations to ensure the completion of the project in accordance with global standards,” she said, further reinforcing the role of international expertise in driving the successful introduction of these financial instruments in Uzbekistan.
Moody’s Insights: Investor Confidence and Ratings
Stanislav Anastasiev, Vice President and Senior Analyst at Moody’s, gave a detailed presentation on how Moody’s evaluates the risks associated with mortgage-backed securities and covered bonds. He stressed the need for strong investor protections, especially in the event of issuer bankruptcy. “The key to successful securitization is creating a legal structure that provides robust protections for investors, particularly against issuer bankruptcy,” he said, explaining that segregating the assets backing the securities from the issuer’s general liabilities is essential for safeguarding investor interests.
Anastasiev also highlighted the importance of international ratings for attracting foreign investors. “Moody’s ratings are based on expected losses, which helps investors understand the long-term risks involved,” he noted, adding that a well-structured legal framework would enhance the reliability of Uzbekistani mortgage-backed securities on the global stage.
Securitization and Covered Bonds: Key Distinctions
At the roundtable, Richard Kemmish, an IFC consultant and a global expert on covered bonds, provided insights into how both securitizations and covered bonds could play vital roles in Uzbekistan’s financial future. “In securitizations, the focus is on the underlying mortgages, and the issuer’s rating is less important because the investor doesn’t have recourse to the bank,” Kemmish explained. In contrast, covered bonds require a dual recourse mechanism, where both the bank’s rating and the quality of the underlying mortgages matter. “Banks must ensure that the pool of assets remains high-quality, replacing any underperforming mortgages to maintain investor confidence,” he added.
Kemmish emphasized the importance of creating a robust legal environment for these instruments to function properly. “Uzbekistan has a tremendous opportunity to develop a well-structured market for covered bonds and securitizations, but the key lies in ensuring the legal framework is sound,” he said.
Richard Kemmish on Uzbekistan’s Potential: Interview with Daryo
In an interview with Daryo, Richard Kemmish delved deeper into Uzbekistan’s potential for developing a vibrant mortgage-backed securities market. “There’s a very clear need for housing,” Kemmish remarked. “The availability of housing credit for ordinary people is very limited, and the size of the mortgage market is extremely small. Given how vibrant the economy is and how rapidly the population is growing, it’s clear that we need more funding for mortgages,” he said, emphasizing the urgency of addressing this gap.
Kemmish also highlighted the opportunity for capital market growth. “We need more capital market instruments in this country. In order to get a vibrant fixed income market for pension funds, insurance companies, and bank treasuries, we need to develop high-quality, safe, and liquid assets. What we’re trying to do is turn the need for mortgages into exactly those assets,” he explained.
Attracting foreign investment was another key point Kemmish addressed during the interview. “There are a lot of very stable, conservative investors in Europe—like German pension funds—who are eager to invest in safe products in new markets where they can get better returns,” he said. He mentioned that many of these investors have already shown strong interest in Uzbekistani mortgage bonds. “What makes Uzbekistan so appealing to them is the combination of a strong need for housing, a stable banking system, and very strong regulation. Plus, the yields are better than what they can get in their home markets,” Kemmish explained.
When asked about the importance of ratings, Kemmish was optimistic about the role of both local and international agencies. “Local investors will rely on local ratings, but when we’re selling bonds internationally, we need the confidence that international rating agencies like Moody’s bring to the table,” he said.
Attracting Foreign Investment and Ensuring Legal Protections
Ekaterina Levitanska, Senior Financial Expert at the IFC, noted that the introduction of mortgage-backed securities and covered bonds would unlock new opportunities for financing Uzbekistan’s growing housing market. “The mortgage market in Uzbekistan has grown sevenfold over the last seven years, and while the demand for housing continues to grow, we need long-term financing mechanisms,” Levitanska said. She pointed out that despite the rapid expansion, the country’s mortgage loans still represent a small share of GDP compared to other markets. “This market has tremendous potential, but we need to address the lack of long-term financing through instruments like mortgage-backed securities,” she added.
Levitanska also emphasized that these new financial instruments could bridge the gap between local and international investors, providing much-needed liquidity to the housing sector. “These securities will attract both local and foreign investors, offering more reliable funding options for Uzbekistan’s mortgage market,” she said.
The Path Forward: A Promising Future for Mortgage Securities
The roundtable concluded with optimism for the future of Uzbekistan’s mortgage-backed securities market. “We are on a clear path to introducing mortgage-backed securities in Uzbekistan, but success will depend on building a strong legal foundation and ensuring continued collaboration with international experts,” said Vyacheslav Pak.
Levitanska highlighted that the successful introduction of these financial instruments would mark a significant milestone for the country’s capital markets. “The introduction of mortgage-backed securities will unlock long-term financing that banks need to offer more affordable mortgages, driving growth in both the housing and financial sectors,” she said.
In conclusion, Uzbekistan’s efforts to introduce mortgage-backed securities and covered bonds have the potential to revolutionize the country’s financial landscape. With continued support from international financial institutions and regulatory reforms, Uzbekistan is well-positioned to attract both local and global investors, offering a new avenue for long-term housing finance and economic growth.
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