The Nation Newspaper

Tag: Mortgage banks

  • CBN bars mortgage banks from granting dollar loans to customers

    The Central Bank of Nigeria has barred Primary Mortgage Banks from granting foreign currency denominated mortgage loans to customers.

    The apex bank, which released the draft guidelines for the licensing and regulation of Primary Mortgage Banks, said the operators are also barred from granting  consumer or commercial loans, leasing facilities and engaging in estate agency or facilities/project management and  real estate development as well as other activities that the CBN may classify as non-permissible from time to time.

    CBN Director, Financial Policy and Regulation, Ibrahim Tukur, which signed the draft guidelines, said it was in exercise of the powers conferred on it by the Central Bank of Nigeria Act  and the Banks and Other Financial Institutions Act (BOFIA).

    The regulator also set minimum capital (National PMB) at N8 billion, regional PMB at N5 billion and non-refundable application fee of N1 million and  Non-refundable licensing fee of N2 million and N100,000 for  change of name fee.

    He said the new guidelines were to re-position the mortgage sub-sector with a view to harnessing its potentials for sustained economic growth. The guidelines introduced enhanced requirements for capital, risk management, internal control and corporate governance.

    “Notwithstanding the measures put in place, the mortgage sub-sector continued to struggle against headwinds occasioned by unfavourable macroeconomic and other developments. The guidelines have been reviewed to strengthen primary mortgage banks as well as complement other on-going reforms in the mortgage sub-sector,” he said.

    He said that Primary Mortgage Banks are permitted to engage in mortgage finance, real estate construction finance within the permitted limits, acceptance of savings, demand and time/term deposits, drawing from mortgage funds (such as National Housing Fund (and/or other related mortgage endowments) for on-lending and financial advisory services for mortgage customers.

    The banks, are also authorised to grant  granting mortgage/housing related consumer loans. These are enhancements to residential mortgages which shall be limited to furniture, home appliances and generators subject to a maximum of 10 per cent  of total loans.

    The mortgage banks are to also finance  rent-to-own properties, home improvement loans, incremental housing finance and other activities the CBN may approve from time to time.

    The new guideline also stipulated that the number of directors on the board of a Mortgage Bank shall be a minimum of seven and a maximum of 12.

    The non- executive members shall outnumber the executive directors at any point in time. Also, for non-Nigerian directors, a certificate/statement of good conduct from the Police Service (or other appropriate authority) in country of domicile shall accompany the resume, completed Approved Persons Questionnaire and copies of academic and professional qualification certificates.

    For resident non-Nigerian directors, reference shall be made to his employer, university, and legal permit to reside and work in Nigeria. This is in addition to a certified true copy of the director’s passport, completed Approved Persons Questionnaire and copies of academic and professional qualification certificates.

    Also, all directors and top management staff of Primary Mortgage Institutions shall comply with the requirements of the relevant governance codes, Approved Persons Guidelines and related regulations issued by the CBN from time to time.

    “The CBN may at any time vary or review any condition of a licence or impose additional conditions. Where a licence is granted subject to certain conditions, the PMB shall comply with those conditions to the satisfaction of the CBN within such period as may be deemed appropriate in the circumstances. Any PMB that fails to comply with such conditions shall be guilty of an offence under BOFIA,” the guidelines said.

  • ‘Mortgage banks need cheap, long-tenure funds’

    Mortgage banks are taking steps to ensure that more Nigerians have access to cheaper loans to enable them own houses. In this interview with COLLINS NWEZE, Imperial Homes Mortgage Bank Limited Manager Mrs. Ronke Akinleye speaks on steps taken by the bank to ensure that more Nigerians access mortgage funds to build their houses. She also speaks on the need for policy review that would allow mortgage banks take over property of homeowners who fail to pay their loans to ensure more compliance.

    everyone wants to own a home, but this is not easy. What does it take for one to get an affordable home?

    When you look at the three major needs of a man, home is one of such critical needs. For us at Imperial Homes, we have identified needs in the mortgage industry, and came up with products that can suit different categories of people. If you earn N100,000, we have the National Housing Fund that you can take which is very, very affordable in tenor, and also very attractive pricing. The National Housing Fund loan takes a maximum of 30 years, depending on your age and is at six per cent. If you earn as low as N100,000, you can actually afford such loans. At Imperial Homes, we have also created a product called Vantage Homes, which is also priced at 14 per cent. You know, owning a home is something you have to plan towards.

    The way the product works is simple. There are different categories of the product. You have the gold, silver and platinum, and the Flex. You have to contribute a minimum of 30 per cent. So, you can take up to N18.5 million loan from banks at 14 per cent. We have been able to do a research on our own to determine what an average Nigerian needs. Many people are not even aware of what mortgage is all about. If you come to me as a prospective customer, I will ask you certain questions, to be able to advise, on the best mortgage funding that suits your income.

    Is the National Housing Fund (NHF) accessible to prospective home owners?

    It is. It is possible. Here, we have been able to process NHF for a lot of people. We have done close to N2 billion in NHF. So, it is something that is easy, and affordable, if you bank with the right mortgage bank. May be a lot of people do not know how to go about it. That is one thing that in Imperial Homes, we are trying to educate our customers on. Although it has its own challenges, the Federal Mortgage Bank is working to make some of its processes automated so that the turnaround time is also attractive to people. Before now, you can be there for two years and still waiting on the loan. But they have tried to automate their processes, so that people can have access to these loans.

    On your own part, is the NHF  available for clients to access?

    It is on demand since we do not warehouse the funds. It operates on need basis. You have a customer that wants to buy into different products, you have been able to categorise them into different batches, profile them to determine if they can afford whatever amount they are taking. Put your applications together, forward it to Federal Mortgage Bank of Nigeria (FMBN), it is only when FMBN disburses to us, that is when we give to the applicants.

    Are there stipulated tenors for mortgage loans?

    Yes. There is nothing that has a beginning that will not have when it will end. At Imperial Homes, the maximum tenor is 30 years, depending on your retirement age. If you are 50 years now, that means you cannot exceed 10 years because of the 60 years’ retirement age. But our Vantage product is seven years. We also have some that are 15 years. That is what happens depending on what suits the client. Home ownership is something you have to plan. You need to be building your equity with the bank. But the savings is critical. You must save religiously. If you save N500,000 monthly, that can afford you to buy a property of N25 million, which means bringing your own equity and that of the bank together, you can buy a home of N25 million. The cheapest of it is N50,000 and it has to be regular because once you miss out, it disqualifies you. It is like a pool of funds, which are loaned to people.

    Does the customer earn interest during the period of savings?

    Yes. Interest is paid. We also need to determine what is 33.3 per cent of your income on a monthly basis, and that is what you will start saving. So, we plan it with you. Affordabi-lity is key, and if the customer defaults, it is also going to affect the bank. If everybody pays and when due, it will enable the bank to create more loans.

    What policy shift do you want to see in the mortgage industry?

    There are quite a number of them. If you look at what the mortgage banks are doing, for instance, we have not gotten to single digit mortgage. We have not gotten to that point in Nigeria. For us, the most important thing is for the mortgage lenders to have access to long and cheap tenored funds. And how is that possible? Looking at pension funds, these are the type of funds that should be channeled into solving the housing gaps that we have. So, if they channel those kinds of funds to primary mortgage banks, I am sure we can create products that can be at single digit interest rate because these are long-tenored funds, and you are matching it with long-tenored loans. Unlike when you are using funds from mortgage banks that come from savings, and you cannot stop depositors from coming to take their funds.

    We need access to cheap funds, and we want the government to see what they can do to let the mortgage banks have such access. That will enable the mortgage banks to even do more.

    Are there other challenges facing the industry?

    The next thing is foreclosure law. It has been a serious thing for us in the mortgage industry. Foreclosure law is when a customer takes loan, and has defaulted. The security that we have taken for the loan is the property we have given you money to buy. So, that is the bank’s security. And because you are not paying the bank, and I need to recover the loans, what I need to do is to foreclose on that property, put it on the market for sell, and when I sell, if there is any change left, I can then give you the balance. But because of the judicial system that we have, it is not friendly when it comes to lenders. Even when you have done what you are supposed to do, and is demanded of you, to enforce your right, it is difficult. We have ran to the Federal Government to ensure that when any borrower is owing a bank, you have it at the back of your mind, that see I need to pay my loan back because if the money is not paid back, other people will not be able to access the funds. We also want the government to create policies that will backup our business. Also, in the perspective of borrower, what the borrower wants is affordable mortgage. So, it is paramount that Federal Government should give us policies that support mortgage banking. We are also trying to educate Nigerians on mortgage.

    What do you think about the mindset that borrowing to build one’s house may not be right?

    I think it is just to change the mindset of people. If you do not know what you can gain from a particular thing, you might not see why you should go into it. By the time you weigh the options, you will see that instead of struggling to build your own home for the past how many years, it is possible with easy access to mortgage loans. You can look and say that you have been a tenant for many years, and if you put together those rents, in owning your own home, is it not better for you? We need to create that awareness and educate people on the benefits of getting a mortgage. In the Western World, credit facilities are open to everybody once you start working. But we do not have that type of opportunity here in Nigeria. I would want to see a process, whereby once you are graduating from Nigerian school, you have a good paying job, there should be a bank waiting to help you buy a home of your choice.

    How would you describe the mortgage industry in Nigeria?

    The industry in Nigeria is very vibrant. We are trying to create more awareness. We are waiting to see how the Federal Mortgage Bank of Nigeria can make its processes simpler. I think it is also trying to make things faster. The way we are being pushed to get things done in the mortgage industry, I think the sky is the beginning for us. It is more vibrant than what it used to be.

    It looks like the industry is dominated by men?

    We, as the women, it takes a lot of hard work, commitment to balance work with family. We have few ladies that are also in the industry. There is no gender discrimination in the industry. The same work a man is doing, I also need to do to enable me get to the top of my career. I think it is equal platform for both men and women. It is just women need to work harder and attain the leadership position in the industry.

    I know it is a busy industry, so how do you balance home with the work?

    Honestly, a lot of people ask me that question. And I think it is your passion, the level of passion for your job. When you have an understanding spouse that wants you to also succeed in your career that does not mean you should neglect home. When you have a good backup as your spouse, someone that is supporting you, so that even if you have not done something at home, he should be able to help you bridge that gap. I have been able to balance the two to the glory of God.

    Why is it that only five per cent of the 13 million housing units in Nigeria are financed with mortgage funds?

    The truth is that a lot of people are not even aware of opportunities in the mortgage industry. And because of this native intelligence, many people don’t want other people to know they are owing. So, a lot of times, people do not want to borrow to own a home. I do not know any bank that is interested, especially in Imperial Homes, in selling anybody’s property. That is why we take our time to plan it with the customer. Instead of some people to buy a property they can afford, they will go for the one they cannot afford. They want to buy a home of N100 million, and the salary cannot support anyone to be building his/her castle in the air. We want you to be realistic.

    Can you tell us more about the National Housing Fund?

    The National Housing Fund’s contribution, is the contribution that you pay. There is 2.5 per cent of your basic salary that you must be remitting on monthly basis. It qualifies you to apply for loan with the FMBN. You must be remitting that. What is required is minimum of six months. Let’s say, I got a job today, and I start paying the 2.5 per cent from my basic salary. In six months, I am qualified to apply for a loan from FMBN.

    Many people are always interested in the pension fund, that is not forth coming most times. The FMBN is working together with the Nigeria Mortgage Refinance Company Plc (NMRC), working together to create products out of the pension funds. For the Nigerian Mortgage Refinancing, they also want to bridge the mortgage deficit gap. We know that mortgage banks do not have that access to liquidity to create many mortgages. They also come to our aid, saying that once the loan is given, the loans can be refinanced, provided they are quality loans.

    In refinancing, the NMRC packages the loans together, and profile the loans to see if they are performing. If I have given loan of say, N300 million to 30 different customers, they take those loans and pay me back the outstanding for me to create more loans. But there would have to be a record of the loans performance, for they can take such loans. Also, the loan must have been running with the mortgage bank for six months, it is called season period, during which they will check the performance of the loan.

  • ‘Mortgage banks need cheap, long-tenure funds’

    Mortgage banks are taking steps to ensure that more Nigerians have access to cheaper loans to enable them own houses. In this interview with COLLINS NWEZE, Imperial Homes Mortgage Bank Limited Manager Mrs. Ronke Akinleye speaks on steps taken by the bank to ensure that more Nigerians access mortgage funds to build their houses. She also speaks on the need for policy review that would allow mortgage banks take over property of homeowners who fail to pay their loans to ensure more compliance.

    Everyone wants to own a home, but this is not easy. What does it take for one to get an affordable home?

    When you look at the three major needs of a man, home is one of such critical needs. For us at Imperial Homes, we have identified needs in the mortgage industry, and came up with products that can suit different categories of people. If you earn N100,000, we have the National Housing Fund that you can take which is very, very affordable in tenor, and also very attractive pricing. The National Housing Fund loan takes a maximum of 30 years, depending on your age and is at six per cent. If you earn as low as N100,000, you can actually afford such loans. At Imperial Homes, we have also created a product called Vantage Homes, which is also priced at 14 per cent. You know, owning a home is something you have to plan towards.

    The way the product works is simple. There are different categories of the product. You have the gold, silver and platinum, and the Flex. You have to contribute a minimum of 30 per cent. So, you can take up to N18.5 million loan from banks at 14 per cent. We have been able to do a research on our own to determine what an average Nigerian needs. Many people are not even aware of what mortgage is all about. If you come to me as a prospective customer, I will ask you certain questions, to be able to advise, on the best mortgage funding that suits your income.

    Is the National Housing Fund (NHF) accessible to prospective home owners?

    It is. It is possible. Here, we have been able to process NHF for a lot of people. We have done close to N2 billion in NHF. So, it is something that is easy, and affordable, if you bank with the right mortgage bank. May be a lot of people do not know how to go about it. That is one thing that in Imperial Homes, we are trying to educate our customers on. Although it has its own challenges, the Federal Mortgage Bank is working to make some of its processes automated so that the turnaround time is also attractive to people. Before now, you can be there for two years and still waiting on the loan. But they have tried to automate their processes, so that people can have access to these loans.

    On your own part, is the NHF  available for clients to access?

    It is on demand since we do not warehouse the funds. It operates on need basis. You have a customer that wants to buy into different products, you have been able to categorise them into different batches, profile them to determine if they can afford whatever amount they are taking. Put your applications together, forward it to Federal Mortgage Bank of Nigeria (FMBN), it is only when FMBN disburses to us, that is when we give to the applicants.

    Are there stipulated tenors for mortgage loans?

    Yes. There is nothing that has a beginning that will not have when it will end. At Imperial Homes, the maximum tenor is 30 years, depending on your retirement age. If you are 50 years now, that means you cannot exceed 10 years because of the 60 years’ retirement age. But our Vantage product is seven years. We also have some that are 15 years. That is what happens depending on what suits the client. Home ownership is something you have to plan. You need to be building your equity with the bank. But the savings is critical. You must save religiously. If you save N500,000 monthly, that can afford you to buy a property of N25 million, which means bringing your own equity and that of the bank together, you can buy a home of N25 million. The cheapest of it is N50,000 and it has to be regular because once you miss out, it disqualifies you. It is like a pool of funds, which are loaned to people.

    Does the customer earn interest during the period of savings?

    Yes. Interest is paid. We also need to determine what is 33.3 per cent of your income on a monthly basis, and that is what you will start saving. So, we plan it with you. Affordabi-lity is key, and if the customer defaults, it is also going to affect the bank. If everybody pays and when due, it will enable the bank to create more loans.

    What policy shift do you want to see in the mortgage industry?

    There are quite a number of them. If you look at what the mortgage banks are doing, for instance, we have not gotten to single digit mortgage. We have not gotten to that point in Nigeria. For us, the most important thing is for the mortgage lenders to have access to long and cheap tenored funds. And how is that possible? Looking at pension funds, these are the type of funds that should be channeled into solving the housing gaps that we have. So, if they channel those kinds of funds to primary mortgage banks, I am sure we can create products that can be at single digit interest rate because these are long-tenored funds, and you are matching it with long-tenored loans. Unlike when you are using funds from mortgage banks that come from savings, and you cannot stop depositors from coming to take their funds.

    We need access to cheap funds, and we want the government to see what they can do to let the mortgage banks have such access. That will enable the mortgage banks to even do more.

    Are there other challenges facing the industry?

    The next thing is foreclosure law. It has been a serious thing for us in the mortgage industry. Foreclosure law is when a customer takes loan, and has defaulted. The security that we have taken for the loan is the property we have given you money to buy. So, that is the bank’s security. And because you are not paying the bank, and I need to recover the loans, what I need to do is to foreclose on that property, put it on the market for sell, and when I sell, if there is any change left, I can then give you the balance. But because of the judicial system that we have, it is not friendly when it comes to lenders. Even when you have done what you are supposed to do, and is demanded of you, to enforce your right, it is difficult. We have ran to the Federal Government to ensure that when any borrower is owing a bank, you have it at the back of your mind, that see I need to pay my loan back because if the money is not paid back, other people will not be able to access the funds. We also want the government to create policies that will backup our business. Also, in the perspective of borrower, what the borrower wants is affordable mortgage. So, it is paramount that Federal Government should give us policies that support mortgage banking. We are also trying to educate Nigerians on mortgage.

    What do you think about the mindset that borrowing to build one’s house may not be right?

    I think it is just to change the mindset of people. If you do not know what you can gain from a particular thing, you might not see why you should go into it. By the time you weigh the options, you will see that instead of struggling to build your own home for the past how many years, it is possible with easy access to mortgage loans. You can look and say that you have been a tenant for many years, and if you put together those rents, in owning your own home, is it not better for you? We need to create that awareness and educate people on the benefits of getting a mortgage. In the Western World, credit facilities are open to everybody once you start working. But we do not have that type of opportunity here in Nigeria. I would want to see a process, whereby once you are graduating from Nigerian school, you have a good paying job, there should be a bank waiting to help you buy a home of your choice.

    How would you describe the mortgage industry in Nigeria?

    The industry in Nigeria is very vibrant. We are trying to create more awareness. We are waiting to see how the Federal Mortgage Bank of Nigeria can make its processes simpler. I think it is also trying to make things faster. The way we are being pushed to get things done in the mortgage industry, I think the sky is the beginning for us. It is more vibrant than what it used to be.

    It looks like the industry is dominated by men?

    We, as the women, it takes a lot of hard work, commitment to balance work with family. We have few ladies that are also in the industry. There is no gender discrimination in the industry. The same work a man is doing, I also need to do to enable me get to the top of my career. I think it is equal platform for both men and women. It is just women need to work harder and attain the leadership position in the industry.

    I know it is a busy industry, so how do you balance home with the work?

    Honestly, a lot of people ask me that question. And I think it is your passion, the level of passion for your job. When you have an understanding spouse that wants you to also succeed in your career that does not mean you should neglect home. When you have a good backup as your spouse, someone that is supporting you, so that even if you have not done something at home, he should be able to help you bridge that gap. I have been able to balance the two to the glory of God.

    Why is it that only five per cent of the 13 million housing units in Nigeria are financed with mortgage funds?

    The truth is that a lot of people are not even aware of opportunities in the mortgage industry. And because of this native intelligence, many people don’t want other people to know they are owing. So, a lot of times, people do not want to borrow to own a home. I do not know any bank that is interested, especially in Imperial Homes, in selling anybody’s property. That is why we take our time to plan it with the customer. Instead of some people to buy a property they can afford, they will go for the one they cannot afford. They want to buy a home of N100 million, and the salary cannot support anyone to be building his/her castle in the air. We want you to be realistic.

    Can you tell us more about the National Housing Fund?

    The National Housing Fund’s contribution, is the contribution that you pay. There is 2.5 per cent of your basic salary that you must be remitting on monthly basis. It qualifies you to apply for loan with the FMBN. You must be remitting that. What is required is minimum of six months. Let’s say, I got a job today, and I start paying the 2.5 per cent from my basic salary. In six months, I am qualified to apply for a loan from FMBN.

    Many people are always interested in the pension fund, that is not forth coming most times. The FMBN is working together with the Nigeria Mortgage Refinance Company Plc (NMRC), working together to create products out of the pension funds. For the Nigerian Mortgage Refinancing, they also want to bridge the mortgage deficit gap. We know that mortgage banks do not have that access to liquidity to create many mortgages. They also come to our aid, saying that once the loan is given, the loans can be refinanced, provided they are quality loans.

    In refinancing, the NMRC packages the loans together, and profile the loans to see if they are performing. If I have given loan of say, N300 million to 30 different customers, they take those loans and pay me back the outstanding for me to create more loans. But there would have to be a record of the loans performance, for they can take such loans. Also, the loan must have been running with the mortgage bank for six months, it is called season period, during which they will check the performance of the loan.

  • 15 Primary Mortgage Banks fail NDIC’s premium payment test

    15 Primary Mortgage Banks fail NDIC’s premium payment test

    •Corporation adopts new pricing regime

    The Nigeria Deposit Insurance Corporation (NDIC) has said that 15 Primary Mortgage Banks (PMBs) have defaulted in paying their deposit insurance premium to the corporation.

    The NDIC Managing Director/CEO, Umaru Ibrahim, who disclosed this at the 2016 sensitisation workshop for PMBs’ operators held in Lagos, at the weekend, said the corporation’s records showed that 15 out of 42 PMBs are yet to meet their premium payment obligations to the corporation. He urged the affected operators to promptly pay their premium to the corporation in line with regulatory guidelines.

    Ibrahim disclosed that NDIC has the capacity to sustain its efforts in ensuring that insured institutions are put on the part of sustainable growth and development, and exercise that would depend largely of premium contribution.

    The corporation, he said, has also deployed the Differential Premium Assessment System  (DPAS) in pricing the deposit premium of Primary Mortgage Banks (PMBs).

    He said the DPAS centres of strong Enterprise Risk Management Framework (ERMF) and classifies banks into various risk buckets and apply different premium rates depending on the level of risk involved.

    He said the DPAS will mitigate insurable risks for PMBs as well as encourage effective enterprise risk management.

    According to him, the ERMF would include sound strategic planning and transformative business model and addresses the issue of moral hazard which guarantees caution and avoidance of excessive risk taking in running a PMB.

    Ibrahim said: “To the operators in particular, the risk-based premium system allows the institution to pay much less premium than would have been the case, had the alternative, flat rate system had been adopted.

    The NDIC boss said the corporation is the sole agency empowered to guarantee depositors’ funds in the deposit-taking financial institutions.

    “To stimulate the confidence and patronage of mortgage customers, the corporation continued to review the its deposit insurance coverage for depositors of PMBs is now N500,000 in the event of failure. The current coverage level represents and increase of 150 per cent over the earlier level of N200,000. Thus, the gap of the coverage between the commercial banks and PMBs is now bridged with the envisaged increase in patronage of PMBs,” he said.

    He said the DPAS has several implications for PMBs’ soundness and stability adding that in most jurisdictions that practice explicit deposit insurance scheme, the starting point for deposit insurance system pricing is usually the flat rate approach before migration to DPAS.

    “However, the flat rate method failed to compensate for effective risk management and engenders moral hazard which the DPAS incorporate the benefits of effective risk management. From the foregoing, DPAS compensates the mortgage sector since PMBs with better enterprise risk management pay less premium, while PMBs with weak risk management pay more,” he said.

  • CBN lists recapitalisation options for mortgage banks

    The Central Bank of Nigeria (CBN) has outlined the options for recapitalisation available to Primary Mort-gage Banks (PMBs).

    CBN Director, Other Financial Institutions Department (OFISD), O.A. Fabamwo, said PMBs could raise funds from the capital market, right issue, private placement, public offer, business combination, mergers and acquisition to enable them meet the recapitalisation deadline of April 30, 2013.

    He said it was important to remind directors and shareholders of the options to meet the prescribed capital requirements of N5 billion for National PMBs and N2.5 billion for State PMBs and the documentation requirements to obtain regulatory approval for each option.

    He, advised the banks to conduct due diligence and seek professional legal and financial advice. However, the PMBs that may choose to undertake rights issue, private placement, or public offer, are advised to complete the process and submit the documentary requirements for verification on or before March 31, 2013.

    This, he said, is to allow enough time for the capital verification exercise and subsequent correction of any discrepancy and/or submission of any additional evidence that may be required, to ensure that the capital is verified, confirmed and approved before the stipulated deadline.

    Also, the PMBs that may choose the business combination option would have to comply with the requirements of the Banks and Other financial Institutions Act (BOFIA), Companies and Allied Matters Act (CAMA), 1990 and the Investment and Securities Act (ISA), 2007.

    They are also to obtain regulatory approvals of the Securities and Exchange Commission (SEC) and the CBN, hold statutorily required meetings and obtain orders of the courts, where necessary.

    “These timelines are for guidance only. PMBs are strongly advised to conclude the processes even before the recommended timelines,” he said.

  • Mortgage banks scramble to raise new funds

    Ahead of the April 2013 deadline for new capitalisation, mortgages banks are struggling to raise new equity funds to meet new minimum capital requirement under the new Central Bank of Nigeria’s (CBN’s) policy framework for mortgage banks.

    Under the new CBN’s framework for mortgage banks, they will be classified into national and state mortgage banks, with the geographic demarcation as benchmark for minimum capital requirement. National mortgage banks are authorised to operate in all states of the Federation while state mortgage banks are restricted to their registered state.

    National mortgage banks are required to have minimum capital base of N5 billion while state mortgage banks must have N2.5 billion. The deadline for full compliance is April 30, 2013.

    Industry sources indicated that mortgage banks, which capital had been eroded by the meltdown at the capital market and operational losses, were finding it difficult to source new equity funds.

    Despite of a year-long intention to raise funds, none of the mortgage banks have been able to float supplementary new issues. But many mortgage banks still believed they could raise additional funds before the deadline.

    Resort Savings & Loans Plc, one of the four quoted mortgage banks, three weeks ago got the approval of shareholders to raise new equity funds towards supplementing its capital ahead of the recapitalisation deadline.

    According to the resolution, Resort could be seeking to raise funds through public offer, private placement, and rights issue among others.

    Aso Savings and Loans Plc, another quoted mortgage bank, had earlier indicated plans to raise new equity funds.

    “Let it be on record that had it not been for losses in operations in the past two years which we promise to redeem, the bank would not have had a need for new capital,” chairman, Resort Savings & Loans, Chief Francis Adefarati told shareholders prior to seeking approval to raise new funds.

    The capital raising efforts of mortgage banks have been hampered by both the general lackluster state of the inactive primary segment of the capital market and also the poor performance of mortgage banks’ shares at the stock market.

    The trio of Aso Savings, Resort and Union Homes Savings and Loans has so far this year stagnated at their nominal value of 50 kobo while Abbey Building Society is at its lowest value of N1.37 per share. Altogether, the subsector’s market value stands at N19.66 billion, barely a third of market capitalisation of only Union Homes, which had closed January 2008 at N7.66 per share.

    The large outstanding share capital of mortgage banks relative to their assets base has also encumbered new fund raising without addressing issues of share reconstruction and valuation. Resort has 11.33 billion ordinary shares of 50 kobo each, equivalent to N5.66 billion, almost a double of its shareholders’ funds of N2.87 billion and still above its total assets of N5.24 billion, according to the latest audited report ended December 31, 2011. But Resort in the interim report for the period ended September 30, 2012 reported total assets and net assets of N8.65 billion and N5.73 billion respectively.

    Aso Savings has the second sectoral outstanding shares of 8.68 billion shares, nominally valued at N4.34 billion. However, audited report and accounts for the year ended March 31, 2012 showed that Aso Savings had net assets of N3.14 billion, less than its nominal value and new minimum capital requirement for national mortgage banks.

    The Nigerian Stock Exchange (NSE) operates a stop-gap trading mechanism that does not allow share prices to drop below their nominal values.

    “The performance of primary mortgage institutions (PMIs) has not really been encouraging. The requisite fundamental depth to warrant capital injection by impending shareholders may not really be there. Shareholders look for strong fundamental value in the past to determine their interest going forward. If you look at the financials of most of the PMIs, the performance has not really been juicy, except for some very few. Besides, fund raising in the primary market for now may not be encouraging due to market tempo,” a senior investment advisor and economist at a leading investment banking firm said.