As economic activities continue to shrink, leading to job losses, salary cuts and significant drops in personal income, most of the primary mortgage banks (PMBs) which are struggling with rising non-performing loans (NPL), are looking to the informal sector to sustain their business and also stimulate growth.
Low capital base along with the prevailing economic conditions have so impacted the operations of these banks, such that a good number of them are unable to meet their contractual and statutory obligations to their clients and regulators respectively.
The Nigeria Deposit Insurance Commission (NDIC), one of the regulators of the sector, was quoted as saying that the inability of as many as 15 PMBs to pay their insurance premium as at December 2016 was an unfortunate situation that put the customers at risk.
“The loans and advances extended by these PMBs declined by 31.87 percent to N168.96 billion in 2015”, the commission added, pointing out that 14 out of 42 PMBs failed to render returns to it, while unpaid premium from nine PMBs amounted to N238.30 million the same year.
The Central Bank of Nigeria (CBN) says the number of licensed primary mortgage banks (PMBs) remained 34 as at end-December 2016, comprising 10 National PMBs and 24 State PMBs, but adds that notwithstanding their improved performance within the period, their loans and advances, deposit liabilities and other liabilities decreased by 6.85 percent, 5.25 per cent and 5.89 per cent, to N154.46 billion, N115.77 billion and N68.06 billion, respectively, at December ending 2016 from N165.83 billion, N122.18 billion and N72.32 billion at end-June 2016.
The apex bank’s Financial Stability Report reveals the PMBs’ total assets increased marginally to N383.67 billion at end-December 2016 from N382.36 billion at end-June 2016, representing an increase of 0.34 per cent. Similarly, balances with banks and paid up capital increased by 78.86 per cent and 0.05 per cent to N24.79 billion and N103.35 billion respectively, at December ending 2016 from N13.86 billion and N103.29 billion at end-June 2016.
Mortgage is a sub-sector of the economy and the operators are saying that since the larger economy is not doing well and the mortgage sector is not insulated from what is happening in the larger economy, what is happening to them is not unexpected.
“We know what happened to oil price and the forex market. These have affected everything in the economy. In the case of oil, both the volume and the price went down. All these affected consumer purchasing power. Don’t forget that the balance sheets of the mortgage banks were not strong abnitio”, said, Ayodele Olowookere, CEO, Omoluabi Mortgage Bank Plc, in an interview.
Olowookere stressed that the problems of the mortgage banks revolve around their small capital base and so, there isn’t much they can do. “For all the money that I have, unless I raise additional capital, I don’t think I can do 1,000 mortgages. To do mortgages, you need long term funds and that is the only way you can do long term mortgages”, he said.
Udo Okonjo, vice chair/CEO, Fine and Country West Africa, agrees, emphasising that the real core factor responsible for the slow growth in this sector is that the banks and the mortgage institutions do not have long term funds; all they have are short term deposits.
“The underlying fundamental for mortgage growth is that we have to have a savings culture and large financial base because mortgages are long term funds. In an ideal world, you will be talking about 20-25 years mortgages at the very low interest rate”, Okonjo added.
Technically speaking, Nigeria has no mortgage system, and so, Okonjo reasons that the country doesn’t really have a real estate sector. “What we are doing is just scratching the surface. If we really want to create wealth through real estate, which is one of the major ways the developed world creates wealth, then we have to develop and grow the mortgage sector”, she emphasised.
In the face of all these, Olowookere believes that mortgage banks and their operators won’t go out of business because, according to him, “we are here to stay and grow this sector”.
He further revealed that “at Omoluabi, we are looking at the best way to do things, especially in credit management and evaluation. We are looking at the informal sector. People in this sector are not collecting salaries, but earn huge and regular incomes. So, we are finding creative ways of bringing them into the net. We are also looking at new ways to raise capital by bringing in more shareholders”.
He canvassed government’s intervention in the sector, saying, “government needs to know that if the mortgage industry is well run and there is a good policy thrust to support its operations, it will diversify the economy with job creation. The focus on agriculture is good because we need to feed ourselves, but everybody also needs shelter.
“We have been demanding, since 2005, for a change in the Land Use Act of 1978 to no avail. There is need to quicken processes leading to title transfer and building approval. Cost and time of perfecting titles need to change. The Federal Mortgage Bank of Nigeria (FMBN) needs to be restructured to meet the demands of today. The National Housing Fund (NHF) also needs to be restructured for same purpose. There should be special focus on the industry and how it is funded”, he said.