By Yinka Kolawole
The Central Bank of Nigeria (CBN) is planning to set up a National Housing/Mortgage Intervention Fund, expected to be in the region of N200 billion, as part of efforts to increase access to affordable housing in the country.
Meanwhile, the Mortgage Banking Association of Nigeria (MBAN), umbrella body for primary mortgage institutions (PMIs) in the country, has called on the apex bank to allow categorisation for mortgage banks as obtained in the new banking model.
Mr. Kola Durojaiye, a Deputy Director, Other Financial Institutions Department (OFID), disclosed this during an interactive session at a one day Seminar on “Nigerian Real Estate Market 2011: Review and Projections” organised by PISON Housing Company, last week, in Lagos.
Durojaiye, who represented CBN’s Director of OFID, Mr. Femi Fabanwo, said that some key factors have been identified as the bane of mortgage finance in the consideration of the reform of the sector. These are: Weak capital; Dearth of long-term funds; Absence of mortgage refinance/liquidity company or a secondary market and; High cost of funds. Others include: Titling challenges; Poor legal framework; Inadequate housing delivery systems and; High cost of property transactions.
Based on the observations, he said that the apex bank would soon unveil a five cardinal point reform package in the mortgage banking sub-sector. The reforms he said are designed to correct the observed weaknesses in the sub-sector.
The proposed N200 billion housing/mortgage intervention fund, he noted, would come into effect only after the reforms of the sub-sector.
The reforms, he said, would be implemented over a period of 18 to 24 months, during which mortgage banks would be required to recapitalise to meet the new minimum capital base.
On the new capital base for the sub-sector, Durojaiye said that the apex bank is yet to take a final decision, noting however, that N5 billion has been proposed while mortgage banking operators have made a case for categorisation with different minimum capital base.
MBAN’s General Secretary, Mr. Kayode Omotosho, confirmed the position of operators on categorisation to Vanguard. He said that the categorisation will lead to having national and regional mortgage banks, such that when the national primary mortgage banks (PMBs) are required to have capitalisation N5 billion, others not able to raise up to that amount may settle for around N2 billion as regional PMBs.
Speaking on the proposed reforms, Durojaiye said the reforms include: Appropriate legal framework; Accelerated development of affordable housing; Development of institutional framework; Establishment of mortgage refinance/liquidity company and; Establishment of National Housing/Mortgage Intervention Fund.
“A close look at the reform areas clearly show that only the last are under the direct purview of the CBN. In its quest to develop a robust institutional framework, the CBN released new guidelines for appraising mortgage and real estate loans in DMBs and PMIs _ effective July 1, 2010 and proposed new regulatory guidelines for PMIs. Key areas addressed in both documents are: Documentary and appraising standards for mortgage and commercial real estate loans; New provisioning rates and time-lines for mortgage loans; Recapitalisation; Streamlining of activities in favour of core mortgage financing; Easing access to liquidity vide the NHF refinancing facility and; Better corporate governance.
“The reforms are aimed at: Repositioning and strengthening the PMIs as vehicles for housing and home ownership delivery; Fostering the emergence of well capitalised PMIs and; Promoting a robust mortgage finance system through market support initiatives,” he said.
Fabanwo highlighted some of the activities that have been planned by the apex bank in pursuant of the reform process. These, according to him, are: Approval and implementation of regulatory guidelines; Recapitalisation of PMIs (to be known as Primary Mortgage Banks – PMBs); Stakeholders meeting scheduled for the 2nd quarter of 2011; Routine examination of PMBs (in conjunction with NDIC) scheduled for 3rd quarter and; Integration of PMBs into the payment system, which is on-going.
“Given its potentials, real estate and housing finance remain huge but largely untapped resources. Identified challenges have been considered in developing the reform documents. Mortgage lending as a specialized sector needs customized guidelines, not “one size fits all”. The reforms are aimed at strengthening the sub-sector and promoting a robust mortgage finance system through market support incentives,” he stated.
In a paper titled: Real and Mortgage Finance: Guidelines and Planned Activities for CBN, Fabanwo highlighted the weaknesses of the mortgage sub-sector, saying the huge housing deficit in Nigeria, running into tens of millions units, is indicative of the big potential real estate has in the economy. He lamented that mortgage finance has grossly under-performed by contributing less than two per cent to the GDP, compared to 10 per cent by other developing economies.
Specifically, he noted that mortgage finance contributes 14 percent to the GDP of Korea, 18 per cent in Thailand, 60 per cent in Hong Kong and 68 per cent in Singapore.
He noted that all previous efforts by government to reduce the housing deficit and improve access to mortgage finance have fallen short of desired results. “These efforts have not led to expected growth rate of the sector as statistics obtained from 77 active PMIs of a total 101 as expected core sector in mortgage finance as at June 30, 2010 revealed the following: Aggregate shareholders fund – N54.8 billion, Aggregate Total Assets – N310.2 billion, Aggregate Total Deposit – N109.3 billion and, Aggregate Loans and Advances – N104.8 billion.”
Fabanwo further declared that the PMIs have an uphill task meeting the required prudential requirements, with only a few of them having fully complied based on their returns rendered to the CBN. For instance, he noted that only 49 PMIs meet the Capital Adequacy Ratio of 10 per cent; 45 met Liquidity Ratio of 20 per cent; only 4 met Mortgage/Total Assets of 50 per cent minimum; 16 met Mortgage/Loanable assets of 60 per cent minimum; 52 met the Capital funds : Net Credit Ratio (1:10); while only 28 met the minimum requirement of 30 percent for Non-performing/Total Loans.
It would be recalled that the apex bank, last year, proposed to increase the shareholders fund of PMIs to N5 billion as part of the expected reform of the sector. The proposed increase is the fourth in the history of mortgage banking in the country. The initial minimum share capital for PMIs was N5 million; a figure that was first moved to N20 million and later to N100 million.
The proposal brought anxiety to some of the operators, as their expectation had been an increase to N2 billion. Statistics show that 15 PMIs have hit the N1billion mark in shareholders’ funds while about five others had accumulated more than N3.5 billion. Expectations are high for mergers and acquisitions within the sector, especially among independently owned mortgage firms.
A major highlight of the proposed mortgage reform is the cancellation of mortgage engagement in property management and equity investment in property development. Others are new prudential requirements that include capital adequacy ratio: Minimum 10 per cent against risk assets, maximum equity investment holding of 25 per cent of shareholders’ funds unimpaired by losses and minimum of 75 per cent of total mortgage assets for residential commitments.