The International Finance Corporation (IFC), an arm of the World Bank Group, will invest up to $50 million or around Tk470 crore in the country's first-ever housing bond that will be issued by Brac Bank.
The Tk600 crore bond, with a tenure of five years, will be taka-denominated which means IFC will pay to the bank in local currency, the two organisations said in a joint statement on Monday.
In October last year, the Bangladesh Securities and Exchange Commission approved the issuance of the bond that will make housing finance more affordable nationwide.
The IFC's subscription of the bond at an annual interest rate of 5.5% would help Brac Bank to lower its housing loan interest rate to around 7.5% from the current rates of 8%-8.5%, said Md Shaheen Iqbal, deputy managing director of Brac Bank.
Brac Bank, having an over Tk1,300 crore housing loan portfolio right now, is also planning to give more small housing loans across Bangladesh, while the current portfolio is dominated by urban loans, Iqbal added.
Later, the remaining portion of the bond would be privately offered to local institutional investors and high-net-worth individuals.
"This marks a whole new strategic priority for Brac Bank, since our establishment in 2001, with our goal to improve access to finance for underserved small and medium enterprises," said Brac Bank Managing Director and Chief Executive Officer Selim R F Hussain.
"We, along with IFC, recognise that far too many low and middle-income earners simply cannot access the funds they need to buy a home. Now, people of semi-urban areas can also fulfil their dream of owning a house with our affordable home mortgage facilities," he added.
Thousands of low and middle-income urban and rural families in Bangladesh, often underserved by commercial banks, are expected to be able to avail affordable housing loans through the Brac Bank program being supported by the IFC. Also, the investment in the five-year bond is expected to create thousands of new jobs in construction and related industries, according to the statement.
IFC and Brac Bank said it is estimated that about 80% of city-dwelling Bangladeshis live in rented properties all their lives, mostly due to a lack of mortgage finance. Home mortgages only account for 3% of the country's loan market, below the average of 4.9% in South Asia and 8.9% in the emerging markets.
Most financial institutions focus on providing housing finance to higher-income people, while access to formal housing loans for low and middle-income segments is very limited.
This causes a surplus in premium housing and a shortage of both housing finance and housing units for low and middle-income people.
IFC's subscription to the Brac Bank housing bond would help deepen the country's long-term bond market which remains underdeveloped. The project was supported by the Joint Capital Markets Program (J-CAP) - a World Bank Group initiative to develop debt capital markets.
"It is also the first time that a foreign investor plans to invest in an onshore local currency bond to be issued by a local private institution to finance housing. It then demonstrates opportunities for new foreign and local investors to invest in such thematic bonds in the domestic corporate bond market," said Allen Forlemu, IFC regional industry director, Financial Institutions Group, Asia and Pacific.
The investment is also supported by the local currency facility of the International Development Association's private sector window through a US dollar/taka cross-currency swap to facilitate international investors' local currency lending.
Brac Bank shares, having a face value of Tk10 each, closed at Tk40 on the Dhaka Stock Exchange on Monday.