Fixes December 31, 2012 as deadline for recapitalization of mortgage firms.
Categorises PMBs minimum paid up capital: National - ₦5 billion, State – ₦2.5 billion
Amid stunning revelations that the housing finance sector contributes less than one per cent to the Gross Domestic Product (GDP), the apex financial institution has announced new sweeping changes in the mortgage sector in a new guidelines approved by the Federal authorities.
The revised guidelines released by the Other Financial Institutions Department (OFID) of the Central Bank of Nigeria (CBN) last week falls in line with the proposed housing/mortgage finance reform agenda, which entails reform/ strengthening Primary Mortgage Institutions (PMIs), develop institutional framework and develop the secondary mortgage market through adequate capitalization of PMIs, re-focusing PMIs, standardization of mortgage underwriting, capacity building and professional development as well as promoting mortgage Insurance and establishment of a Mortgage Liquidity Facility.
Current reform supersedes earlier circular to the Primary Mortgage Banks (PMBs) that pegged the new minimum capital requirements of mortgage firm on N5 billion. The policy thrust of the latest document is to rejig the housing finance market, where the ratio of mortgage finance as a percentage of GDP stands at 0.5 per cent and lags behind emerging markets like compared to South Africa 29 per cent, Mexico 10 percent and Malaysia 29 percent.
The wide differences stem from lack of affordable hoses, unavailability of mortgagees to finance purchases including lack of long term funding for mortgage lenders, difficulties faced by buyers in registering a mortgage or title transfer and difficulties in foreclosing on a property when a borrower defaults.
Statistics released by the bank shows that loan and advances in the sector between 2008, 2009 and 2010 are ₦108, 531,488, ₦121, 290, 217 and ₦124, 165,992 respectively; deposits for the same period are ₦166, 234,932, ₦151, 112, 301 and ₦168, 577, 083 respectively while shareholders are ₦70, 345,140, N86, 614,813 and ₦80.341, 095 respectively.
Under the fresh guidelines, mortgage firms have been categorized into National and State mortgage firms, while the National PMIs are allowed to operate in any or all parts of the federation after the payment of a new ₦5 billion minimum paid up capital, the State PMIs are restricted to only one state at the payment of ₦2.5 billion.
CBN explained that its rationale for the State PMIs is to promote the spread of mortgage firms across the six geo-political zones to further embed the objective of financial inclusion and national PMBs will provide options for operators to remain in business at different authorization levels, and similar to other banking segments.
Currently, the minimum capital requirement for mortgage firms stands at ₦100 million which is contained in the 2003 guidelines that allows granting of loans or advances for the purchase or building, improvement or extension of a dwelling/commercial house, acceptance of savings and deposits, management of pension funds/ schemes, performing estate management duties as well as offering of project consultancy services for estate development and engaging in estate development through loan syndication.
Specifically, under new guidelines, PMIs would only be allowed to perform duties such as mortgage finance, real estate construction finance acceptance of savings and time\term deposits, acceptance of mortgage-focused demand deposits. It clearly streamlines the activities of a PMB to the provision of mortgage finance and exclude other related activities e.g. the provision of estate management duties, etc.
The CBN has also granted the mortgage firms a 12-month moratorium to recapitalize or shore up their shareholders funds before December 2012. Though, the firms are yet to be informed officially, senior officials of OFID disclosed that the guideline has gone to print will be circulated before the end of the year.
The development was confirmed by the Director, OFID, Mr. Femi Fabanwo at the maiden Housing Finance and Investment Conference sand Exhibition organized by Mortgage Banking Association of Nigeria (MBAN) in Lagos last week. He said the new guidelines would clearly streamline the activities of a PMB to the provision of mortgage finance and exclude other related activities like the provision of estate management duties as well as discourage PMBs from engaging in risky activities such as speculative real estate investments) using depositors’ funds
He said that the implementation of the revised PMB guidelines is critical within the stipulated deadline of December 31, 2012; potential of mortgage banking as a veritable channel/platform for affordable housing in Nigeria is largely unexplored and implementation of proposed reforms need a concerted effort to ensure the achievement of the desired goals of affordable housing, employment generation and economic growth.
MBAN President, Mr. Olayinka disclosed that following the issuance of the first exposure draft document which incorporates details of the proposed reform programme for the sector by CBN, “our association gad been engaging the regulatory/ apex bank in discussions on the regulatory capital that would be optimal for the sector as well as other complementary issues that revolve around the consolidation.
MBAN says government policies must look at the provision of minimum initial seed capital of N500 billion s intervention funds through the CBN for the mortgage banking/ housing finance sector at a nominal interest rate of one to two per cent per annum to jumpstart government guaranteed bonds for mortgages in the country.