Recently, the Federal Government gave approval for the disbursement of the $300 million World Bank loan for the implementation of the Nigerian Mortgage Refinance Company (NMRC), raising hope and expectation of the emergence of a robust mortgage industry in the country.

NMRC is a secondary mortgage company. It will refinance mortgages originating from primary mortgage lenders including Primary Mortgage Banks (PMBs) and commercial banks that are into mortgage business. The company is also planned in such a way that for any institution to benefit from its re-financing facility, such an institution it must have shares in NMRC. 

By way of shareholding in the company, mortgage banks and the Mortgage Banking Association of Nigeria (MBAN) will be controlling 50 percent as against the initial plan in which they were to have 30 percent, commercial banks, 20 percent; finance ministry, 20 percent; International Finance Corporation (IFC), 10 percent, all making up  100 percent.

It is on account of this shareholding structure that we, like other well meaning Nigerians, are interested in the success of the on-going recapitalization of the PMBs aimed to increase liquidity in the system.

By the revised guidelines released by the Central Bank of Nigeria (CBN) on their operation modalities, the PMBs are required to raise their capital base from the present statutory N100 million to N2.5 billion and N5 billion for those wishing to operate at state and national levels respectively.

Aware of the difficulty in raising this capital all by themselves, the CBN in the revised guidelines provided adequate soft-landing for the PMBs, giving them options of raising capital through rights issue, private placement, public offer, business combination or mergers and acquisitions, takeover or downscaling. 

Though we are aware that a good number of the PMBs are involved in negotiations on business combinations by way of mergers, acquisitions and outright take-over by core investors, we are nonetheless worried that only a few have crossed the N5 billion mark to operate nationally.

Our worry is premised on the strategic importance of these primary lenders to the success of the incoming secondary lender which NMRC embodies. There is no gain-saying that the Federal Mortgage Bank of Nigeria (FMBN) remains a lame-duck in its two decades of operation due largely to illiquidity in the mortgage system in the country.

Mortgage operators are assuring the world that by the time the recapitalization round comes around, about 50 percent of the present 83 banks would still remain in business and we only hope this would materialize in spite of pervading doubts among close watchers of the mortgage banks.

For us, sufficient liquidity is of essence in order for NMRC to achieve its objective, more so when we know that with a mortgage deficit of well over N20 trillion and 17 million housing deficit in Nigeria, requiring about N56 trillion to bridge,  the World Bank’s $300 million is just a drop of water in the ocean.

Expectations are high on the successful implementation of the refinance company in Nigeria. From the operations of the company, 750,000 homes are expected to be produced annually; it promises 10 percent interest rate on a 10-year bond; 10 percent interest rate on a 20-year mortgage, and seeks to standardize mortgage in the country at 20 years.

The Finance Ministry is a major stakeholder in the NMRC and, according to the minister, one of the company’s targets is to increase the number of mortgage loan from 20,000 to 200,000 in five years, meaning that the country needs to create 200,000 new mortgages within that period and this is squarely the duty of PMBs.  An analysis of this figure shows that with two-bedroom bungalow at N5 million, about  N1 trillion is needed to be put into the system in order to create that number of mortgages, making the World Bank’s money just a scratch on the surface. 

We therefore, urge all stakeholders to this recapitalization, particularly the CBN and the PMBs themselves, to ensure that the December 31 deadline comes off with something to cheer about. We however, caution that the exercise should not be just for its own sake, nor should it be pursued at all cost so that the ugly experiences in the commercial banks’ consolidation do not come back to us.

 An OP-ED by Businessday

2013-11-26