HARARE - FBC Building Society says the re-introduction of paid up permanent shares (Pups) needs to be matched with a long-term source of funding to avert liquidity disparities on building societies’ balance sheets.

“As the instrument gains momentum in the market, core deposits will accumulate in building societies and these can be channelled towards long term mortgage loans. This means that in liquidity management long term loans need to be matched by long term deposits to avert liquidity mismatches on the building societies’ balance sheets,” FBC building society’s spokesperson Priscilla Sadomba said.

She noted that as a result of the effects of the hyper-inflationary environment the country experienced in the past, the culture of saving has been eroded.

“However, the initiation of Pups will encourage depositors to save for longer tenors with a view to accessing mortgage finance from building societies and will encourage Zimbabwean investors to invest for longer term periods of two years and beyond to enjoy tax free benefits earned on such investments,” Sadomba added.

Pups are designed to mobilise private sector funds for housing by enhancing building societies’ competitiveness in attracting deposits although legislation alone will not encourage depositors to invest in them, thus building societies have an innovative role to lure the investors to invest once again in this instrument.

“The scarcity of long term funding is the root cause of the medium term mortgages (10 years) that are available in the Zimbabwean market.

The little mortgage activity on the Zimbabwean market has been as a result of innovative financial institutions such as FBC Building Society introducing mortgages on the back of its housing project developments,” said Sadomba.

She said building societies mortgage financing has been through the accessing of 10 year mortgage facilities at punitive rates due to perceived political risk by the regional lenders, thus the re-introduction of Pups is a step in the right direction.

“This will result in the creation of core deposits that can be availed as mortgage finance for longer periods at lower interest rates.”

The measure by Biti to allow for the provision of housing and mortgage financing for housing is critical in any economy.

“This Budget gives priority to this issue to save current generations from being generations of ‘lodgers’,” Biti said when he presenting the 2013 National Budget.

Pups were introduced in Zimbabwe through Statutory Instrument 308 of 1986 with a view to enable building societies to raise long term funding for periods up to two years.

At the height of Zimbabwe’s economic performance, savings which form the backbone of mortgage financing, contributed nearly 8 percent to the gross domestic product when building societies offered 25-year mortgages.

However current statistics show that the bulk of bank deposits are transient in nature but with the availability of long term funds the issue of mortgage interests and the tenor of the mortgage bonds will be addressed. - Kudzai Chawafambira