OREANDA-NEWS. November 23, 2009. Prime Minister Vladimir Putin called for interest rates on mortgages to be lowered yesterday, stating that the rates should not exceed 11%. To this end, the government will allow up to 20% of the Pension Fund, which is managed by VEB, to be invested into mortgage bonds issued by Russian banks, reported the press-centre of OTKRITIE Financial Corporation.

View: The government focus on mortgage lending is a positive for the sector and for the economy overall, although we doubt that lower rates alone will be enough to jump start the mortgage market, the real estate market and construction - as prices of residential real estate remain relatively high despite the crisis-induced correction.

The average fixed mortgage rate in dollars is 14.8%, though Sberbank offers rates from 13.25%. As VEB currently controls RUB690bn (US29bn) of the Pension Fund, 20% of this amounts to US5.8% - that is, only a fraction of one percent of GDP. This is a relatively small figure, unlikely to substantially impact the mortgage market.

Action: We think Sberbank is best-positioned to drive the mortgage recovery and (later on) expansion, given its network, strong funding and capital base. Considering that most Russian banks lack long-term funding, and that Sberbank received a RUB500bn subordinated loan, it is far better supplied with long-term resources than the majority of the market. We have a BUY rating with a target price of US3.3.