By YINKA KOLAWOLE & JONAH NWOKPOKU

In a bid to address any systemic failure resulting from build up of toxic asset, Nigeria Deposit Insurance Corporation, NDIC, has cautioned Primary Mortgage Banks, PMBs to adhere to recommended corporate governance practices based on effective and sustainable risk management practices as instituted by regulatory authorities.

Managing Director/CEO of NDIC, Umaru Ibrahim gave the charge at the corporation’s 2014 Sensitisation workshop for operators of Primary Mortgage Banks in Lagos.

The workshop focused on the theme: “Developing and implementing sustainable effective risk management in Primary Mortgage Banks in Nigeria.”

According to Ibrahim, “Weak corporate governance and risk management frameworks could result in risky behaviours by PMBs, which could in turn result in the creation of huge toxic assets and ultimately put insured deposits at risk.”

He lamented that the supervisory authorities were deeply concerned about the build-up of toxic assets of micro finance banks, which stood at about 45.70 per cent as against the prescribed maximum of five per cent, while hinting that the corporation’s attention is now being focused on both Micro Finance Bank and PMB sub-sectors so as to address the emerging challenges.

He, however, advised that PMBs should be interested in enhanced risk management standards because some mortgage portfolios are on a predominantly variable rate and therefore highly sensitive to interest rate fluctuations.

He said: “For instance, an increase in interest rate could make mortgage repayment difficult and result in default which may give rise to toxic assets. Furthermore, new mortgages could become less attractive for consumers’ due assets.

PMBs should be able to assess a consumer’s ability to continue with mortgage repayments in the case of an interest rate rise. A lack of thorough and effective assessments could pose a major risk for many PMBs.”

Meanwhile, while urging PMBs to look deeper into emerging risk management issues at their various institutions, Ibrahim stated that the corporation and the Central Bank of Nigeria were making concerted efforts to ensure that risk management issues in the financial system were continuously addressed via rapidly developing capacity in the implementation of Basel II and III.

However, as part of its effort to protect depositors by ensuring that bank’s affairs are conducted in a safe and sound manner, he disclosed that NDIC developed and deployed a framework for financial assistance for PMBs so as to promptly intervene and assist them to overcome temporary liquidity problems and put in place a robust customer complaint resolution mechanism.