BRENT MORTGAGE BANK BOSS SPEAKS ABOUT THE ECONOMY AND MORTGAGE FINANCE
The Managing Director of Brent Mortgage Bank Limited, Mr. Kola Abdul, says finance can be raised to bridge the deficit in the nation’s N56tn mortgage market, in this interview with newsmen. Sit back and enjoy it.

Is Nigeria’s economy actually growing?
The economy is still performing sub-optimally. Inflation rate, unemployment rate, exchange rate and interest rate are still very high when compared with other emerging economies. Quite saddening is the fact that anticipated rapid growth and development are being consistently undermined by lack of power, insecurity and poor public governance. However, we can draw solace from the fact that it will witness reasonable growth with the relative stability in the financial services industry.

Nigeria is regarded as one of the ‘new boom’ economies with the acronym ‘MINT’ countries, namely Mexico, Indonesia, Nigeria and Turkey. These countries are expected to be part of the world’s biggest economies by 2050. They actually have a lot of challenges but the huge potential can create exponential growth if properly harnessed.

The economy was recently named the largest in Africa. How can this translate into better living standard?
The Nigeria’s GDP was rebased to $510bn, outpacing that of Egypt and South Africa to become the biggest economy in Africa and 26th largest in the world. The rebasing can translate into improvements in the country’s key economic statistics such as the ratio of debt to GDP. It will also give competitive advantage. It is expected to earn the confidence of local and foreign investors on the size and worth of the economy. More FDIs are expected to be attracted into critical sectors of the economy with a view to creating more jobs, reducing poverty and reducing unemployment rate.

Where will the mortgage finance sub-sector be in five years?
In the next five years, it is hoped that the mortgage sector would have grown geometrically to contribute about 10 per cent to the GDP. The bazooka effect of recapitalsation, the coming on stream of the Nigeria Mortgage Refinance Company, the birth of a vibrant secondary market, listing of many mortgage banks in the capital market, enhanced mortgage knowledge and skill, increased inflows from foreign sources would impact tremendously on the sector. Certainly, there would be great departure from the 0.5 per cent contribution of the mortgage sector to the GDP in the next five years.

How was the recently concluded recapitalisation of primary mortgage institutions?
The recapitalisation exercise was handled by the Central Bank of Nigeria, with full understanding of the peculiarity of the mortgage banking sector in the country. Primary mortgage institutions were allowed to recapitalise, merge or divest in strict compliance with the guidelines of the mortgage banking sector reform.

The operators were given final deadline of June 30, 2014 to increase their authorised and fully paid share capital, from the minimum N200m to either N2.5bn for state license, or N5bn for national licence. The CBN and Mortgage Association of Nigeria organised a series of stakeholders’ meetings with PMIs with a view to ensuring that the recapitalisation exercise did not produce many casualties and undesirable consequences stemming from lack of knowledge of options and strategies of recapitalisation.

With these efforts, many PMIs metamorphosed into national or state PMBs. Some mergers were recorded. Some downscaled to microfinance banks and finance companies, while a few others could not scale the hurdle. CBN has yet to make any official pronouncement on the outcome of the exercise, but we are aware that the exercise has produced the categories stated above.

With the recapitalisation, mortgage banking sector capital will increase substantially. Balance sheet leverage for asset creation will increase to more than N1tn based on capital adequacy ratio of 10 per cent. This will likely fund more than 100,000 mortgages at N10m per mortgage. In effect, there would be accelerated production/supply of stock of houses for mortgage. It is also expected that the sector will be strengthened in very many areas. There will be service delivery, efficiency and capacity building for mortgage operators. It will lead to the separation of real estate development from mortgage banking, creation of enhanced role for rating agencies, promotion of mortgage insurance for credit enhancement, enforcement of directives for PMBs to open accounts with CBN to support monetary policy formulation.

Finance is a major constraint in tackling housing deficit. How can this be addressed?
Housing deficit in Lagos State is estimated at about 2.4 million units for a population of about 17 million. That accounts for about 12 per cent of the state’s population and growth rate of eight per cent. Lagos state has the highest out of the 17 million housing deficit in Nigeria for a population of over 160 million. At an average of N3.5m per unit excluding cost of land, Nigeria requires about N56tn to remedy the housing deficit gap. The amount is 12 times the size of the country’s 2014 budget of N4.69tn. This means if every spending other than housing finance is put on hold, it will take Nigeria over 12 years to bridge the housing deficit. It would even take much longer time if the population growth rate is considered. This amplifies the enormity of the finance required to clear the gap and greatly accentuates the fact that the Nigerian mortgage market is extremely large and massive growth potential exists despite the fact that it is still at its nascent stage.

In response to this, the CBN felt the imperative need to increase the capacity of the mortgage institutions to contribute more meaningfully to economic developments as enunciated in the vision 20-2020, a plan crafted to make Nigeria one of the best 20 economies by 2020. Recapitalisation of the mortgage institutions is undoubtedly a critical step in addressing the problem associated with the much-needed finance in the sector.

What are the constraints to mortgage financing in Nigeria?
The challenges confronting mortgage financing in Nigeria are multifarious. Some of them are related to the inability of mortgage banks to access long term funds at single digits. There are also deposit portfolios that are small in size, short in tenor and high in pricing. Others are poor market visibility and lack of trust in mortgage banks by the public; high incidence of asset-liability mismatches with resultant liquidity problems; customers’ preference for commercial banks; high operating cost structure, cumbersome legal regulatory framework for land titling and property foreclosure in the event of default; and absence of secondary mortgage market.

What is the rate of recovery of mortgage loans advanced by your bank?
For us at Brent, we adopt pedestrian pace of credit origination strategy so as to avoid risk asset problems and put less pressure on our capital.

From: http://tectono..com/