‘Mort­gage banks need spe­cial win­dow to crack down in­ter­est rate’

Daily Trust - - PROPERTY - By Nasir Imam

In­fin­ity Trust Mort­gage Bank plc is one of the fore­most mort­gage banks in Nigeria. The bank’s MD/CEO, Banjo Obal­eye, speaks on the need to crack down in­ter­est rates to make it at­trac­tive for home own­ers.

Tell us the jour­ney of your or­ga­ni­za­tion so far.

Af­ter 10 years in the mort­gage in­dus­try, we think we have come of age to spread the op­por­tu­ni­ties that the share­hold­ers of In­fin­ity Homes have been en­joy­ing to the rest of the pub­lic. In do­ing that, there are ad­van­tages for both ex­ist­ing and in­tend­ing share­hold­ers. The ex­ist­ing share­hold­ers will have ben­e­fit of ex­pan­sion from re­turn on their in­vest­ment while the prospec­tive share­hold­ers will equally ben­e­fit from the turn­around val­ues that the ex­pan­sion from the vol­ume of cap­i­tal will bring.

Mort­gage busi­ness is cap­i­tal in­ten­sive, a busi­ness where you give out loan for 15 to 20 years in mil­lions of naira -- so you need long term cap­i­tal to do that and the only av­enue is the cap­i­tal mar­ket other­wise we will be left with short term funds. And you can run into prob­lem of mis­match if your sources of fund­ing are short in na­ture, it will be prac­ti­cally im­pos­si­ble for you to lend in the long term.

So there is no way any mort­gage bank that is aim­ing to go na­tion­ally will not be at­tracted to the cap­i­tal mar­ket for fund­ing. So we got listed on the Nige­rian Stock Ex­change on the 11th of De­cem­ber 2013. The ex­pe­ri­ence was very scin­til­lat­ing. What made it pos­si­ble was our track record of over 10 years. We’re happy and hop­ing other mort­gage banks will fol­low so that we get out from un­der dog play­ers to the main­stream fi­nan­cial mar­ket.

What is the share cap­i­tal of In­fin­ity Homes?

As at the close of busi­ness last year, our share cap­i­tal stood at N5.4 bil­lion, unim­paired by losses, and our bal­ance sheet stood at N7.5 bil­lion. We started in 2003 with less than N100 mil­lion and al­most neg­a­tive bal­ance sheet. Now it’s time for us to spread our wings. Now we’re a na­tional mort­gage bank in­stead of a state mort­gage bank. We’re one of the eight na­tional mort­gage banks with share­hold­ers fund of N5 bil­lion and above.

But there is this process of merger in the mort­gage sec­tor.

Yes, in meet­ing the cap­i­tal base, some are un­der­go­ing merger to get them there. There’s a leap in mort­gage cap­i­tal re­quire­ment for mort­gage banks. Be­fore now, it was N100 mil­lion, moved to N2.5 bil­lion to N5 bil­lion. It’s a big leap so many in­ge­nious strate­gies are be­ing de­vel­oped to put this in place to meet up.

So we have raised our own cap­i­tal base, any­thing that at­tracts de­mand is a good busi­ness; hous­ing is ev­ery­body’s de­mand, the prob­lem is the cap­i­tal to get it. Our dream is to make most Nige­ri­ans home­own­ers; we can’t over em­pha­sis the ad­van­tages of home own­er­ship.

What is the to­tal num­ber of houses pro­vided by In­fin­ity Homes so far and what is the ra­tio of mort­gages given?

In our Model City, Gwar­inpa, Abuja we built 357 houses con­sist­ing of low, medium and high in­come houses. We have 60 per­cent of houses in that place pro­vided by mort­gages. The Sun City, this is still an on-go­ing busi­ness, paucity of funds be­ing the ma­jor im­ped­i­ment. We di­vided Sun City Es­tate into four phases, we man­age it for Ad­kan Ser­vices Ltd. Now, we’re in the third and fourth phases and are about 50 per­cent com­pleted. And noth­ing less than 40 per­cent of the houses in Sun City is fi­nanced through mort­gage by us.

The other es­tates we have in­clude Vin­tage Es­tate in Karu, ba­si­cally tai­lored to­wards low and medium in­come earn­ers with 900 units of two and three­bed­room bun­ga­lows. We’ve com­pleted about 400. The twobed­room is N9 mil­lion while the three-bed­room is N11 mil­lion. Some are still avail­able for sale.

Then Life Camp with 37 fin­ished du­plexes tar­get­ing the high in­come class is about 90 per­cent com­pleted and about 50 per­cent sold. Our mort­gage on that is about 15 to 20 per­cent mort­gage.

What about cases of fore­clo­sure?

You know, in mort­gage busi­ness, re­pay­ment is vi­tal so we’re very metic­u­lous about who we give our loans to. You have to have in­tegrity be­cause we don’t want to help you get a house and then take it away force­fully be­cause we know the trauma that is in­volved. There’s need to avoid force­ful sale or fore­clo­sure. Mort­gage cases in our courts should not be more than two months un­like what ob­tains now where you have cases dragged through ad­journ­ments. We se­ri­ously need to ad­dress such le­gal is­sues.

How has In­fin­ity Homes been able to sus­tain the tempo?

It’s a dif­fi­cult ter­rain and ev­ery­thing was work­ing against us, people ex­pect to get mort­gage loan at rates com­pa­ra­ble to what ob­tains abroad but we op­er­ate in the same en­vi­ron­ment with commercial banks, we can’t do any­thing with­out the commercial banks back­ing us. We bor­row money from them at commercial in­ter­est rates so the cost of busi­ness is higher.

And the Land Use Act is an­other prob­lem; un­less it is tin­kered with to make mort­gage busi­ness work, we’ll not go any­where.

Can the newly floated Nige­rian Mort­gage Re­fi­nanc­ing Com­pany

(NMRC) re­ally work?

NMRC, con­ceived by the Mort­gage Bank­ing As­so­ci­a­tion of Nigeria (MBAN) is the an­swer to the clar­ion call from the oper­a­tors to have a sec­ondary mar­ket where they can pass through their mort­gages to be able to do busi­ness. It’s prac­ti­cally im­pos­si­ble for mort­gage businesses to sur­vive with­out a sec­ondary mar­ket. Noth­ing can move if funds re­volve around what I have alone, so NMRC is stand­ing in as a sec­ondary mar­ket for mort­gage pass through obli­ga­tions.

Can FG re­ally fi­nance NMRC?

Govern­ment doesn’t need to fi­nance it, now World Bank has given us $300 mil­lion loan at al­most zero in­ter­est rate.

Is it ad­e­quate?

You can’t get what is ad­e­quate, but we have what is ad­e­quate in the econ­omy. As at Jan­uary, the fund­ing from pen­sion funds was hit­ting N3 tril­lion, Sov­er­eign Wealth Fund is grow­ing as well and in­ter­na­tional in­vestors are in­ter­ested in where they will ob­tain bet­ter yields for their in­vest­ments. Hous­ing is a sec­tor that can at­tract a lot of for­eign in­vest­ment. With our 17 mil­lion hous­ing deficit which re­quires a fund­ing gap of N70 tril­lion, that’s a lot of money and that’s a lot of busi­ness and there is de­mand.

What is the ideal in­ter­est

rate for mort­gages in Nigeria?

We’re talk­ing about say six per­cent in an ideal sit­u­a­tion and this is rel­a­tive to the econ­omy. We have dou­ble-digit in­fla­tion rate so you can’t have an in­ter­est rate that is be­low the in­fla­tion rate, if you do that you lose money. Then you talk of other macroe­co­nomic in­dices that are not uni­form world­wide so what is ideal in UK might not be ideal in Nigeria.

The in­ter­est rate in Nigeria to­day is over 20 per­cent. There’s no bank that will give loan for less than that. And when you talk of mort­gage loan, the ques­tion is where are the sources of fund­ing, and what is cost of fund­ing? High in­ter­est rate im­pedes the growth of home own­er­ship and the hous­ing sec­tor.

So mort­gage banks need a spe­cial win­dow where they can get low in­ter­est funds and crack down the in­ter­est rate on mort­gages. The Federal Mort­gage Bank of Nigeria (FMBN) is a sec­ondary mar­ket op­er­a­tor that op­er­ates Na­tional Hous­ing Fund (NHF) as con­tri­bu­tion from mem­bers at no cost which they are man­ag­ing. Their sources of funds are very limited and now aware­ness is high. FMBN has done very well, far bet­ter than what ob­tains in the past but the gap is so much to make an im­pact and they won’t do more than the fund­ing they have.

Banjo Obal­eye

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