October 22, 2018

CBN moves to reduce credit risk in mortgage financing

CBN moves to reduce credit risk in mortgage financing

Introduces mortgage guarantee companies
Stipulates N6bn minimum capital base

By Elizabeth Adegbesan

THE Central Bank of Nigeria (CBN) has announced the introduction of Mortgage Guarantee Companies (MGCs), aimed at reducing credit risk in the mortgage finance sector as well as increase access to mortgage loans.

The new firms, according to the CBN will operate with minimum capital base of N6 billion and authority to provide full or partial guarantee for residential mortgage loans.


The Central Bank of Nigeria head office in Abuja.

This is contained in the exposure draft on the regulations for the operations of MGCs released through a letter to all banks, Federal Mortgage Bank of Nigeria (FMBN), Nigeria Mortgage Refinance Company (NMRC) and Mortgage Bank Association of Nigeria(MBAN).

Signed by the Director, Financial Policy and Regulations Department, CBN, Kevin Amugo, the letter stated: “In an effort to promote mortgage financing and advanced home ownership, the CBN is proposing the introduction of MGCs in Nigeria”.

According to the apex bank, the objectives of the MGCs are to support mortgage originators such as Primary Mortgage Banks (PMBs)  and commercial banks to increase mortgage lending by guaranteeing against  losses resulting from borrower defaults on their mortgage loan portfolios.

On the scope of activities permitted for  MGCs,  the exposure draft stated: ”The MGC shall engage in full or partial guaranteeing of residential mortgage loans; Invest in government securities and  other investments; Assume ownership of residential property in the event that a lender is unable to dispose of a fore closed property, provided that such holding shall not exceed 20 percent of its shareholders’ fund unimpaired by losses without the bank’s prior written approval; Issue bonds and notes to fund its operations; Provide technical assistance to lenders on credit and business development related activities to increase pool of development expertise and other activities as may be prescribed by the CBN from time to time”.

On the non permissible activities, exposure draft stated: “The MGC shall not engage in acceptance of demand, savings and time deposits, or any type of deposits; Grant consumer, commercial or mortgage loans; Originate primary mortgages; Finance real estate construction; Estate  agency or facilities management,  Project management relating  to real estate development; Management of pension funds/schemes; Foreign exchange, commodity and equity trading; and  any other activity not expressly permitted by the CBN”.