Oct 2022 Interview with Fabrice Susini, CEO, Saudi Real Estate Refinance Company
“We have made the link we wanted to make between the mortgage market and the capital market domestically, and we want to replicate that internationally.”
Prisma Reports (PR): To begin this interview, could you give us an overview of the main services Saudi Real Estate Refinance Company (SRC) provides and the role it plays in the Saudi housing landscape?
Fabrice Susini (FS): If I may start with your second point, which is the role played by SRC, as that will help you to understand its background and put it into perspective. The company was created in 2017 through a decision of the government that required the Public Investment Fund (PIF) to establish and capitalize a mortgage refinancing company. From that, you can understand that we are, on the one hand, a private company comparable to any other, with a shareholder, board, policy, procedures and even key performance indicators. To a certain extent, therefore, we are almost a normal company.
At the same time, as we were created by a government injunction we have another dimension, which is our role as a tool of public policy. SRC was established in the context of wanting to push the development of the whole housing ecosystem in Saudi Arabia — we came in as a participant and contributor to this comprehensive ecosystem. Alongside the responsibilities of a private entity — we have to be self-sustainable, and we have to make sure we cover our costs and generate a fair profit — we also have to contribute to the housing system and our objectives include a focus on liquidity and mortgage affordability.
What do we do, in terms of contribution? When the government decided to develop the Saudi housing system, it did it by replicating or building up a continuum that started with the supply side; making sure that enough relevant and affordable homes were built in the kingdom. That is the starting point of the continuum. Then, elements were put in place that were designed to help banks better serve segments of the population that were underserved — trying to make sure that people who could apply for mortgages are taken care of by the banks. That is the role played by our friends at the Real Estate Development Fund (REDF), which designed a lot of products supporting bankability and accessibility to financing solutions for the relevant segments of the population that the housing ecosystem is focused on.
So, we have homes and we have people that are applying for mortgages that could be accepted by banks. But how long and how far can the banks go if the mortgage market keeps growing? Isn’t there a point at which they would need liquidity, where they would need to better manage their balance sheet or take care of certain risks. That is where SRC comes into play. We are part of this consistent continuum, coming at the end of the equation to make sure that primary mortgage originators will keep originating mortgages and that they won’t be stopped by considerations related to liquidity, capital adequacy, interest rate risk and so on. That’s where SRC plugs itself in: as an enabler of the primary market development, by pushing the creation of the secondary mortgage market, and as a link between the primary market and capital market.
We liaise with the banks and mortgage finance companies — they are our direct customers. At the same time, we keep in mind the benefits of what we do for the borrowers, our indirect constituents, in order to make mortgages suitable and affordable for them. We also turn ourselves toward the capital market to refinance mortgages and to make sure that we have access to the resources that we put to work with the banks and mortgage finance companies. That is long and short of the rationale and the principles that underpin SRC’s creation.
What is key to bear in mind is that we are part of a big picture; we are part of a full ecosystem. We are a link between the primary market and capital market, a catalyst for the creation of the secondary mortgage market and we do all this by being an enabler, without a regulatory role or subsidies to share. But we have lots of support coming from our shareholder and our stakeholders: the Ministry of Finance, the Saudi Central Bank (SAMA) and the leadership of our chairman, His Excellency Majed Al-Hogail. We steer the boat in a way that is in sync with the objectives of the government and the Vision 2030 plan.
But what does that mean? Very often, as far as housing is concerned, we sum up Vision 2030 in one element: the 70% home ownership that the government is targeting. Within the role that I have explained and within the contribution we can make, our job is to help facilitate the development of the mortgage market so that we contribute to 70% home ownership by making mortgages more easily accessible and more affordable — that is cheaper — for the end users, the Saudi citizens. How do we do this? By facilitating the refinancing by the banks, by lowering the cost of the mortgages as much as we can. We are very much helped in this objective by the support we have received through the Ministry of Finance and the sukuk guarantees from the kingdom. That broadly defines what we do and the context in which we operate.
PR: Moving forward, what should we expect from the company and what are its growth projections over the next two-to-three-year period?
FS: We started as a pure startup, with no legacy activity and no legacy income. We had a workforce of 15 or 16 people when I joined the company in 2017, when SRC had just been licensed by SAMA. We created everything from scratch and, of course, our activities then were about hiring, policy and procedures, finding premises, and so on and so forth. We also needed to engage with our primary customers — the banks and mortgage finance companies — and explain what we could do for them; trying to convince them that we can help them to keep originating mortgages.
During the past five years, we have built, established and stabilized the company. Just to give you a couple of numbers: we generated our first positive bottom line in 2020. For me, that was really the year where we turned the company around, where we moved from a pure startup environment to a situation where we were proving our relevance, rather than fighting for our survival. In 2020, we ended the year with a balance sheet of around $1.6-1.7 billion. We doubled in 2021 and we are close to doubling again in 2022. Today, we have engaged with all the active mortgage originators in the primary market, across banks and mortgage finance companies. We are working with the entire sector and trying to provide them with different solutions. At the end of these five years, we have reached a level where I think the raison d’être of SRC — its credibility, its ability to help shape the market — is not coming into question. For example, we have created the benchmark mortgage reference curve and issued $3.5 billion in guaranteed sukuks over 18 months.
So, we have reached a certain level and have achieved a couple of milestones. What is next for SRC? That is articulated around three chapters. The first is what I would put under the label of “business as usual”— with a tweak. It’s saying that what we have done so far, we will keep doing, but better, bigger and broader, with some adjustment and adaptations. For example, we have engaged with all of the primary originators, but we know there are other originators in the market that are not financial institutions and with which we should engage in order to help them keep on helping Saudi citizens to access home ownership. We need to find ways to help those non-financial originators, for their own benefit and the benefit of their employees.
In addition, although we have engaged with all banks and mortgage finance companies, we need nevertheless to keep adjusting and amending the products we are offering them to make sure that we keep addressing their needs, which are evolving. The banks are facing challenges today that are a bit different from those they were facing three, four or five years ago when we started our discussions with them. On our side, we need to keep adapting our offer to make sure that we address the market and the originators’ evolution, as well as borrowers needs. I call it “business as usual” because it is not a rupture and it is not a disruption. We are simply continuing to accompany the sector and playing our role as an enabler, continuously supporting Saudi citizens in their journey for accessible housing.
The second chapter is related to a few disruptions or changes that we need to look at. We are, for example, open to initiatives related to technology and digital processes that will help facilitate access to mortgages, lower their costs and improve the borrower’s journey. Whether we work with an incumbent or with new originators in the sector, we will always be open to initiatives that will help improve the competition, give more choices to Saudi citizens and which improve the mortgage offer. This comes at a time when there is a big push across the kingdom for digital developments and fintech initiatives, and we are exploring what we can do there and how we can support such initiatives. So, alongside our “business as usual”, we will not hesitate to look at supporting smart disruption.
In the third chapter, we will focus on developing our ability to access capital markets. The attention paid to liability in the upcoming two or three years is very important. We need and we want to go international as soon as possible — next year, if possible. We need and want to develop structured finance solutions as well, and we intend to test the domestic market in this area next year. We are doing this for two reasons. The first is related to the two previous chapters — business as usual and disruption — as it will support the deployment of more assets and a growing balance sheet. Making sure that we are more significant, more helpful and more of an enabler means we need to seamlessly refinance ourselves. We need to find the resources.
Our second objective is to help develop the capital market in the kingdom. We believe this can work in two ways. One is about developing products, offerings and processes that will help international investors to access the Saudi market. The other way is around developing products, patterns and benchmarks that will help other issuers and financial institutions to access capital markets. For example, we envision that we will start securitizing next year and we hope that whatever we do will be picked up and used by other financial institutions if they need it and if their strategy can accommodate the requirements for securitization.
We want to develop the process and products with the view that we will use them for ourselves, because we need to refinance more assets, but we are also thinking about other beneficiaries as well. Over the next three years overall, I expect the company to keep growing and to further ingrain itself within originators’ strategic planning processes — regardless of the rhythm at which the market develops — and for SRC to have helped create the conditions for a better, more efficient mortgage market.
PR: Do you have any final comments for the readers of Foreign Policy magazine?
FS: Until now, we have been very domestically focused. When you asked what our objectives are moving forward, one is clearly to become better known internationally, whether that is because we will be issuing corporate sukuks or because we will turn to the structured finance capital market. We have made the link we wanted to make between the mortgage market and the capital market domestically, and we want to replicate that internationally. You can expect to see SRC becoming more and more visible in the international market and to the international investor community. And our motivation goes beyond our funding strategy: as part of our mission, alongside our stakeholders and partners, we want to contribute to establishing and solidifying the KSA brand name in the capital market. That is one element.
The second message I would like to share with your readers is that we are still a small company that is trying to contribute to the changes and opening up of the kingdom. I am a strong advocate of the message that people should come and visit Saudi Arabia. Come and see the opportunities, and don’t stay on the sidelines. There is a lot to discover, appreciate and see here, and there is a wide range of opportunities that the kingdom is offering to international investors who are interested in this new frontier. I would invite your readers, regardless of their interest in the mortgage market, to come and see Saudi Arabia for themselves.