The Argentine market is changing due to increased interest in UVA-adjusted loans.
Recent changes in regulations in Argentina have caused increased interest in UVA-adjusted household loans, allowing people – for the first time in many years – to own their own homes. Prior to these changes, the high levels of inflation had complicated the loan process.
UVA is a value unit that is linked to inflation. It offers security to banks and consumers on loans for mortgages. UVA loans are attractive for long-term financial agreements because borrowers are assured a maximum amount for monthly payments. In case there is unexpected inflation this will make the UVA loan longer but the monthly payments could not exceed that maximum amount.
One of the instruments that the market is looking at is the securitization of UVA loans, after the Comisión Nacional de Valores' (CNV) new regulation that allows banks to assign UVA loans to a trust. The trust issues and places the notes denominated in UVAS in the public capital market.
Changing the market
In the past, Argentina had a short-term market, but now with UVA loans there will be assets available to allow for longer transactions. Banks are issuing these loans for the first time in a decade. Because of inflation they did not have real value in the past. This has generated great interest to the public because these loans will be the new way of granting mortgages.
Customers are interested in applying for a UVA loan rather than a conventional mortgage loan at a fixed rate. Fixed rate loans may have lower costs in the last instalments because of inflation but the initial payments are too high for most people to apply.
From March 2016, the mortgage UVA loans increased and achieved a stock of AR$ 87,084m (Argentine Pesos) which is equal to 53% of the total mortgage loan portfolios of the banks. These are very promising numbers and because of these loans, Argentina is looking at the real possibility of growth for the middle class for the first time in many years. This new type of asset will reactivate the mortgage market that was virtually non-existent for many years because of inflation.
UVA loans is a key governmental initiative to improve and reactivate the economy, incorporating to our local legislation an instrument that was utilized and successful in other countries of the region.
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With these UVA loans, banks now originate long term loans which they can sell to trusts. Argentine Bank, Banco Hipotecario S.A., has chosen TMF Group to issue the first public offering trust with these UVA loans as their assets. Through using a trust, the banks get the financing they need to grant more loans. These kind of long term trusts will make the Argentine capital market bigger and more sophisticated.
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