Why commercial banks shy away from mortgage – FMBN MD
Architect Ahmed Musa Dangiwa is the Managing Director and Chief Executive Officer (MD/CEO) of the Federal Mortgage Bank of Nigeria (FMBN). In this interview he expounds on the mortgage sub-sector and happenings in the bank in the nearly six months he has
When you came on board in April you said you wanted to develop a mortgage finance change agenda that would serve as a compass and would fit in to the overall housing reform agenda of government; how successful has this been?
It has been successful. The housing sector is extremely linked to the economic performance of any nation, therefore, in view of this; the bank has focused attention since its inception on delivery of affordable houses to all while exploring other public private sector partnership, as well as other means of improving the housing sector.
We are also looking at improving and strengthening the mortgage market in order to attract both local and foreign investments, hence the bank will be exploring opportunities in both the domestic and international markets.
The bank is more determined now to work with relevant stakeholders. We are more determined to provide an enabling environment, as well as solid foundation for mortgage financing in Nigeria.
Another issue we intend to continuously seek innovative solution to is to meet the housing demand of Nigeria, as well as make them available for the middle and lower income earners. Our focus in this bank is basically low and medium income affordability. I am not saying we are not for the high income earners because most high level income earners don’t even look for mortgage. It is the low and medium income earners that are looking for mortgage. We have the ministerial housing scheme which is providing houses for them in many states.
In the coming months the scheme is going to be extended and many states are going to benefit from it. It’s under the mortgage refinance scheme agenda which is ongoing. I assure you that its success will positively impact on the housing sector of the economy and the reform agenda of this administration.
What is the role played by primary mortgage banks (PMBs) in the operations of the FMBN?
PMBs are presently playing a critical role in the operations of the bank because in line with the National Housing Fund NHF Act we are not allowed or we can’t disburse funds to subscribers directly, hence the role of the PMBs comes into play. They are the link between us and loan beneficiaries. We have had challenges over the years in the operations of the PMBs such as delays in processing the loan applications. You find that applications take longer time, and mostly, the blame will come to FMBN.
Others are loan disbursement or late disbursement. Sometimes we disburse the loans to PMBs for them to pay beneficiaries or developers, but they will delay the loan for their own selfish gains; like getting interest from banks. So late documentation and delay in the PMBs to comply with adequate security for the loans are some of the problems, but we are beginning to get much better services. We got a tripartite arrangement with the Mortgage Banking Association of Nigeria (MBAN), where issues that factor on the operations and roles of the PMBs are always discussed; we used to have the meetings with ourselves and PMBs, Real Estate Developers Association of Nigeria REDAN and even the Building Materials Producers Association of Nigeria (BUMPAN).
What about nonperforming loans, what is the problem?
The loans are in two categories: we have the estate development loan which is a loan given to estate developers to develop the houses for us to mortgage. The other one is the National Housing Fund (NHF) which is given to workers which constitutes the largest, and the absence of efficient management could spell risk to the banks. The banks’ non-performing loans is not entirely regarded as a loss because of the houses that are already built by the developers, but the NHF loans are where we have problems because once the mortgage is created and repayment starts the banks are able to recoup their funds. That is the reason why we placed adverts recently. Honestly it is to ensure that defaulters meet up with the requirements before our own side will take the law. It is in compliance with the law, before we do that we have to give them notice that we are taking measures to mitigate the risk on how to manage the crises.
FMBN is threatening to publish the names and to take loan defaulters to ICPC.
Yes; we did that deliberately and we intend to do it in as much as we find that most of the loan defaults are deliberate. The coming of this IT solution, like the NIBSS Instant Payment, which we are having, we intend to collaborate with the NDIC so that the NIBSS can search through all your accounts and expose same whether it’s a company or an individual because all these loans are signed by individuals, even if it’s a company.
What response? has been the
There is a lot of response honestly because at the moment we have recouped amounts running to billions naira. Corporate organisations, individuals and private developers are responding and there has been tremendous increase in the payment of loans.
Some of the PMBs have collapsed
On most of the PMBs that collapsed, we liaised with the NDIC, that is the rule, even NDIC last week, came here on courtesy call and the response from them is very encouraging. In fact, some payments from two of the banks that have been liquidated, others too, we have eight of them, have been reconciled and I think within the next few days our staff and their staff will finish the reconciliation.
Are the funds from the Nigeria Mortgage Refinancing Company (NMRC) supplementing that of the National Housing Fund (NHF)?
They are not. The NHF’s pool of funds, established by an Act, are used in creating these mortgages for NHF at an affordable rate of six per cent over a long tenure of up to 30 years.
So this is a social responsibility sort of to which the low and medium income earners can own their houses through NHF, while the NMRC was created as a private enterprise meant to refinance these mortgages at commercial rates. However, ours is at six per cent rate. In fact, we give our rates at four per cent to PMBs and then they give it out at six per cent. There is a difference, but they do mortgage refinancing at secondary mortgage market at commercial rate.
There have been several calls for the bank’s recapitalisation, do you have enough funding to address this challenge?
Honestly we don’t, that is the essence of seeking for recapitalisation, so people are even insinuating that we have already been recapitalised, but in the real sense we are in the process; we are having discussion in our ministry, to which processes are ongoing towards recapitalising the bank. Even during the last retreat of the Council of Works in 2016, and even this last month, the recapitalisation was discussed, agreed and even approved. So we are doing the nitty gritty.
With the recapitalisation we can meet most of the needs we require because mortgage markets are capital intensive that require lots of funding, and mostly, when you go to commercial banks they shy away from the mortgage market because of the fact that it’s a long time tenure, and they avoid giving long term loans like up to 00 year period, that’s why we are seeking the recapitalision of the bank.
Another area is that we are seeing what we can do; partnering with private investors through PPP at low interest rate, like one-digit, and for long tenure.
Talking about single digit interest for loans, how really feasible is this?
It is feasible in as much as a responsible government would like to house its own citizens. Social housing is enshrined in the constitution and it is a serious responsibility of the government. So in that way it is not meant to make profit because we are not profit-oriented but offer social services in as much as we can recoup our funds and then recirculate them so that other Nigerians can benefit from it; that is the essence of creating the NHF in 1992.
How much loan individual entitled to? is an
The maximum loan we disburse here to the PMBs, to an individual, is N15m, and in other to access that we try to stagger it, but anybody that needs a loan of less than N5m, there is no equity for him to pay. It used to be that from N5 to N10m it’s 20 per cent, but now we are trying to ensure that it’s reduced to 10 per cent. For N10m to 15m it used to be 30 per cent equity but we want to make it 20 per cent, just for further availability because we found out there are general masses, especially the workers, that equity contribution will hinder them from even getting the loans. For a civil servant to get 30 percent of N15m, that’s N1.5m or 20 percent of N10m, that’s N2m, it hinders them, that’s why when we came on board we tried to reduce it so that workers can access mortgages.
What about the loan itself, is N15m actually adequate?
It’s adequate, the minimum requirement under the World Bank is that a house, a twobedroom house can cost nothing less than N3.5m, that’s $10,000, that’s the minimum, so a house is a house depending on the finishing; that is what makes it expensive. The same N3.5m three-bedroom, if you bring another person that can put the finishing of his choice, it could be worth N10m.
What about those asking for refund, how long will it take them to get them?
When we came there were lots of complaints about refunds and delays about refunding, so we try as much as possible to process any refund that comes to our office and within 40 days you get refunded.
So from the day the refund originates, within 90 days you get refunded after retirement or at about 60 years. So we are efficient.
I can assure you that if you go to 90 per cent of our branches all over the country you won’t find any backlog of refunds. And here we don’t have any backlog.
Arc. Ahmed Musa Dangiwa, Managing Chief Executive Director and