Plans to charge an interest rate below 15 percent
Ethiopia’s first self-proclaimed private mortgage bank, Goh Betoch Bank, announced its plans to disburse one billion birr in mortgage loan for homebuyers, before the end of this year.
Founded by over 6,650 shareholders, Goh joined the banking industry with a paid-up capital of 521 million birr and a subscribed capital of 1.1 billion birr.
Aiming to capitalize on the growing housing demand in Ethiopia, the Bank plans to collect over 1.3 billion birr deposit in the existing fiscal year.
“At least 400,000 houses must be constructed to fill the demand gap. However, efforts to satisfy the demand is undermined by a lack of finance, which we would like to address by availing low-interest loans,” said Mulugeta Asmare, president of Goh Bank.
In order to get a loan from the Bank, borrowers are expected to deposit up to 20 percent of the value of the house they would like to buy.
The repayment period for the loan will be 30 years, whereas the lending rate depends on the income of the borrowers and the total loan they would take.
However, the interest rate would be below 15 percent, the average lending rate in the industry. The share of mortgage loans from the credit portfolio of commercial banks is below three percent.
For over four decades, Construction and Business Bank (CBB) was the only mortgage bank in Ethiopia before it was acquired by the Commercial Bank of Ethiopia, which commands almost 70 percent of the mortgage in Ethiopia.
Ever since CBB became inactive, low-income households were forced out of the mortgage market. Employees of international organizations and staffs of banks are the major beneficiaries of the mortgage loan in Ethiopia, a trend that Goh wants to change.
“we want to serve any house seeker who can afford the 20percent of the house value upfront,” added Mulugeta
Goh has opened three branches in Addis Ababa (around Lebu and Bole Rwanda areas) and another one in Dire Dawa. It is also in the process of opening its fourth branch at CMC area, with plans to expand in Hawassa, Adama, Bahir Dar, Gonder, and Mekelle if peace prevails.
Despite the optimism, however, experts are wary how the managers of Goh would mobilize deposits.
An investment consultant, who has advised different financial institutions, said “Long-term financing is very complicated in Ethiopia. It requires high liquidity, which is going to be difficult for the executives of Goh to find. They will be challenged to mobilize deposits.”
During its establishment, Goh had announced its plan to closely work with international organizations, including the World Bank and the UN Habitat, to diversify its pool of deposit.
Selam Bank is another financial institution which is under-formation that will provide mortgage banking services. It plans to finance 100,000 housing units within five years.