Like a heavy cloud, a deep sense of disquiet now hangs over the mortgage sector, following new proposal by the Central Bank of Nigeria (CBN) to increase the capital base of banks.
The CBN Governor, Godwin Emefiele, had recently laid out his five-year policy thrust that includes recapitalising the banking industry, so that banks can a maintain higher level of capital as well as liquid assets in order to reduce the impact on the financial system.
He also revealed plans to encourage banks and financial institutions to lend from their balance sheet in order to support the growth of critical sectors of the economy, such as agriculture, Micro- Small and Medium Enterprises (MSMEs) and the real estate sector. This will put greater emphasis on improving consumer spending and business investment by MSMEs, which is critical to sustainable double digit growth of the Nigerian economy.
Emefiele also intends to ensure more mortgage lending. “In our effort to support the growth of Nigeria’s real estate industry, the CBN will work in developing a framework that will enable banks to securitize mortgage loans, which can then be sold in the capital markets.
“Adequate safeguards will be put in place to reduce the risk of delinquency in the mortgage backed assets that will be sold in the capital markets. These measure will reduce the credit and liquidity risk to banks of holding these assets on their balance sheets and improve the amount of funds available to support mortgage loans. It will also reduce the high cost of obtaining mortgages for banking customers,” he said.
The Guardian gathered that mortgage operators and their investors have been gripped by a state of restlessness over the possible backlash of the proposed sweeping changes on Primary Mortgage Banks (PMBs), especially as it relates to raising their capital base, which stands at N5 billion for national and N2.5billion for regional banks.
The capital base was increased from N100million. About 34 PMBs operated in Nigeria – 10 are national banks while 23 operate as State PMBs.
Sources told The Guardian that the umbrella bodies of the PMBs, Mortgage Banking Association of Nigeria (MBAN) has begun an analyses of the CBN document to ascertain it’s relevant to the sub-sector and to sensitise its members.
Statistics show that the size of mortgage market is N284 billion (2010); N348.1 billion (2012) and N518.76 billion (2016). Only about 5per cent of the 13.7million housing units in Nigeria are currently financed with mortgages.
The mortgage industry generates 100,000 transactions between 1960 – 2009 and 181,519 transactions (2010 – 2016) while contribution of mortgage finance to Nigeria’s Gross Domestic Product (GDP) is about one per cent.
The Chairman, Board of Trustees, Real Estate Developers Association of Nigeria (REDAN), Prince Oluseyi Lufadeju welcomed the CBN new policy, “There is no need to be scared of the CBN’s decision to increase the capital base of banks. We are unfortunate to have pegged the value of our currency to the dollars the first place. Anything that happens to our naira value in relation to the dollar will structurally affect our operations.
“Since the last increase in bank’s capital base, the value of the naira has depreciated over 100per cent. The logical thing to do is to adjust this to bring it to the current level vis a vis the dollar. That is why I don’t think we should tie ourselves to the dollar forever. The Chinese yuan is a trading currency and we can use their exchange rate.
According to him, “the capital base of the mortgage banks is unusually low and unrealistic. With N5 billion capital base, out of which only 50 per cent has been subscribed, the bank can only do little or nothing. We should plan in such a way that all the PMBs can rely on Federal Mortgage Bank of Nigeria (FMBN) for support.
“The capital base of the banks should be set at N1trillion over the next five years in such a way that N200 billion can be subscribed annually. This will give the bank muscle and courage to implement their mandate. In view of the national importance of this sector it should be considered important to involve the state and local governments in the capital increase. The capital base of the PMBs should also correspondingly be increased to allow them play their roles effectively.”
For the Executive Secretary, Association of Housing Corporations of Nigeria (AHCN), Toye Eniola, “mortgage banks are set up to create and grant long term facility to the people and to do this, the banks require huge financial base. Increasing their capital base is realistic for appropriate mortgage system. It is time we confront the challenges in our mortgage market to create appropriate and functional system that will service the mortgage needs of the people. It is a realistic decision in a sane society.
However, he advised that before this is done, the modalities for the implementation of all necessary mortgage laws that would enhance the efficiency of the sector especially foreclosure laws ought to be in place. This is the only meaningful thing to do that can attract investors and develop the mortgage sub sector.
Efforts to get the leadership of MBAN to comment on the new development proved abortive.