In this interview, the president, Mortgage Banking Association of Nigeria (MBAN), an umbrella body for all mortgage banks licensed by the Central Bank of Nigeria, Dr. Femi Johnson who also doubles as the managing director, Homebase Mortgage Bank spoke on different issues in the mortgage sector, especially their drive for improved operating environment in home-ownership finance and why the National Housing Fund has not been viable. He is a director, Nigerian Mortgage Refinance Company (NMRC) and member of the governing council of the Chartered Institute of Bankers of Nigeria (CIBN).
Challenges facing the mortgage sector have been identified as weak capital, high costs of funds and inadequate delivery system. How are the mortgage banks tackling these problems?
First and foremost, the issue of funding has been resolved to a large extent in terms of lack of funding. We have the Nigerian Mortgage Refinance Company (NMRC), a secondary mortgage bank that has come on board; it raises money from the capital market through bonds for refinancing of mortgage loans. NMRC now has allowed us to have 20 years’ funds in the market to lend. The company gives us 15 years money in the first instance.
As you know NMRC bonds are fully guaranteed by the federal government, that allows them get money at almost the same rate. NMRC has gone to the market and raised N8 billion in the first tranche. The company has government backing to raise about N400 billion; about N40 billion has been registered with Security and Exchange Commission (SEC). They will go back to the market in the second quarter of this year to raise additional funds.
Our worry now is the issue of interest rate, which has to do with the market. What rate today is tied to the monetary policy of the Central Bank of Nigeria? In Nigeria today, inflation is around 10 per cent, how are we getting the funds at 10 per cent, how do we achieve single digits? We are making people poorer if we give people money to return below inflation rate. No body will give you money below inflation rate.
The way to bring down inflation has to do with monetary polices and physical policies working together. Another way is for the government to directly intervene in the market, by subsiding rates. As has been done with NMRC, government can go to the market; foreign funds can come in and hedge against the exchange rate risks. Today, you can get dollar loans on single digit rates, the major problem with dollar loans is that when you get them, if the exchange rate moves against you, what then happens? I know a lot of companies that have taken dollar loans at single digit interest rate, they collect the money when dollar was 150, now dollar has skyrocketed, how do they pay back? That is like a 100 per cent on top of the money. That will kill them. A lot of them are declaring losses already. The world loan for NMRC is hedged at 2.5 per cent. That means, on whatever rate you get the money, CBN adds 3.5 per cent to it and is responsible for paying back the dollar.
Today, government can say, if you’re bringing money for mortgage or housing, CBN will hedge it. That will help bring down the cost in the market and exchange rate. The third way this can happen is for CBN and government to create specialized funding. We have FMBN’s National Housing Fund (NHF); it is at 6 per cent.
The major problem with the NHF is two folds – One is the one everybody sees. It runs like a ministry, the board, management and all officials appointed by the federal government, it is not necessarily on merit, sometimes, for political considerations. We want a federal mortgage bank that is run on merit like a private sector commercial bank. That way, it would run more efficiently.
The second reason is that the structure of funds itself is not proper today. We launched NHF about 24 years ago, till date, all FMBN was able to collect under the NHF is less that N150billion. The pension launched over five years ago, it has over N 5trillion.
The Act that set up NHF made it mandatory for the employers of labour to contribute towards the scheme. What in your opinion should be the way to ensure companies comply with the Act? Is it by taking them to court?
Regardless of what you have contributed, you apply to the FMBN. If people are contributing about N3, 000 in six months and asking for N15 million loan. The money is not enough to give us these loans and interest at single digit. But what the government can do with that is to peg the interest rate. Pensions have N5 trillion, can they do something like that, saying a portion of pension should go to housing at 8 per cent single digit or can they rework the NHF, rather than the 2.5 percent of basic salary, let it be 5 per cent of total salary that goes into the fund. That way, we will quickly increase the amount in the fund and can go round everybody at a low interest rate. Definitely, we need a kind of government intervention, if we are going to operate outside the market forces. Because, if you leave it to market forces, to contend with inflation, the cost doing business will be added to the cost of lending.
One of the factors militating against the fund is lack of transparency, people are contributing to the fund without benefitting; application for fund that is supposed to take six months take between two to three years for the money to come out. Sometimes, for every ten people that apply, only one person gets because of the queue. The structure of the fund itself has created frustration; remember that the money you contribute to the FMBN is available to you all time. It’s like pension. You can get it back. We should be asking FMBN how many people have you paid back upon retirement, because it’s these indices that make people decide whether or not they want to contribute money to the fund. Are they paying people back, how many people have they paid back among its numerous contributors, most of them would have reached retirement, are they getting their money back on the 2 percent you promised them. If yes, go and blow your trumpet and tell people that the fund is working. You need to sell it to the people.
We agreed its mandatory, its still mandatory. The law is there. Government can decide to wield the big stick and get people to conform. I’m saying, beyond asking people to conform, can you sell them the benefits? If people see that is working, they can comply voluntarily. You see, the people, we need to wield the big stick on are not the contributors, you know with federal mortgage bank law, the federal government is supposed from time to time to provide fund for people to borrow from, like grants regularly. Government has never given them any money. Commercial banks are supposed to contribute 20 per cent of their profits to the fund at the current account interest rate, which presently is zero. That means they are supposed to put money there at one per cent. They never did, every year they declare billions and trillions of naira as profits.
Similarly, insurance companies are mandated to put a certain percentage of their life funds at 4 per cent interest rate to the NHF every year for housing. Insurance companies have never complied. It is the workers we’re always facing, but we have these big institutions that are supposed to put money on a yearly basis and nobody is doing them anything about them. Government needs to wield the big stick on all these institutions, if they are serious to make housing work in Nigeria. Now, they charge N50 stamp duty on deposited funds, this law was there, but was never implemented. Government got broke and decided to do it. It is the same thing, housing is not working, these laws are there, activate and enforce the laws. When this happens, the fund will have enough money to go round, and to develop housing.
Mortgage banks were recently cleared by FMBN to accept and disburse the NHF contributions. When are you starting with the scheme?
We have always been part of the NHF scheme. But you see, under the NHF, when you apply to the fund through a mortgage bank, the PMB packages the application, takes it to FMBN. When it has been approved, the bank will disburse through us to the subscribers. But two years, it is approved. It is not our partner that is having negative effect rather it is our brand that is having a negative effect. It was rubbing off on us negatively. So, we decided to suspend dealing with NHF until we felt FMBN has gotten their acts together. People were still asking us to get the fund for them no matter the time, it takes. We went back to continue the partnership again last year. Over the previous five years, we stopped dealing with NHF. We felt enough structuring has been done. We did reaccreditation December last year; we have started sending them batches of qualified subscribers to grant NHF.
As you know now, the position of the CEO is now vacant, the government is trying to employ a new CEO, again, we are hopeful, who ever comes, comes with new vision, new vigour to speed up the scheme. That is the only source of single digit money in Nigeria today for mortgages.
We noticed that the Pension Act has been amended to enhance access to mortgage finance to Nigerians. How has this impacted on the mortgage sector?
There has been to two major impediments for people that want mortgages, one is finding the house you can afford, and another is being able to have your equity contribution. For you to get any loan, you need equity contribution, typically about 20 per cent of the cost of the house. If someone wants to buy N5 million house, he needs to come up with N1million and you get N4 million from the bank. Having this N1million cash has been the major problem for most prospective loan subscribers. What we proposed to the government, was that these people, if they had been deducting their pensions, contributing 8 per cent of their salary, and the company contributing 10 per cent, that is 18 per cent of their salary, this fund is meant for their retirement, when they retire, the major expense they face is rent. If you can help them solve rent today, his problem is half solved. There is no point that a man is going to retire, after he retires, you then give him some money. Then, he is too old to get a mortgage. Now is the time for him to get a mortgage, such that if he gets that mortgage today, he has finished repaying it, 20 years, by the time he is retiring, at that time, he doesn’t have rent problem any more. You have helped solve his largest expenditure upon retirement. All he has to worry about is what to eat. So we proposed to the government, the Pencom, they listened. What they have done is to say, you can withdraw part of you’re current pension to use for your equity contribution for mortgages. Now contributors can go to their pension administrator, withdraw money they will use as their equity contributions for the purpose of purchasing houses. This started two years ago, but the operation-ability started last year.
On November 2, 2011, the management of Central Bank of Nigeria approved revised guidelines for the Primary Mortgage Banks in Nigeria (PMBs). Can you say, the objectives to strengthen and refocus PMBs for optimal performance have been met, considering some negative news coming out from the sector?
When you say, some mortgage banks are not doing well, there are two issues, within any bank, which is not peculiar to mortgage banks, first is what you call profit and liquidity. CBN stipulates that each bank should keep 20 per cent of its deposits it collect as liquidity fund. It is not expected, except there is market shock over 20 per cent of your customers will come in at the same time to withdraw their deposits. It takes skills to manage fund’s liquidity. Now, it is not every business that is profitable that people need to get into. Some people look at profit, sometimes, it comes from pressures by shareholders to declare dividend. Some CEOs are in a hurry to show that they are making profit. In doing that, they probably end up lending much more than they should lend. Now, as we all know, if a depositor comes today to say, I have deposit of one billion with you, I need it tomorrow, the person you have given the loan to like a developer or whoever, you can’t go to him, to give back that money. It’s tied down. The people you heard are not doing well are probably people that have such mismatch that have happened to them. There are prudential guidelines. So, if you’re prudent with your management, a lot of these things will not happen to you. Another issue is the Treasury Single Account (TSA). Some people were dealing heavily with government, so they have a lot deposits from the government and of course, when the TSA came into force, they were asked to move all these money overnight. As you know, you can’t keep all the money in your vault; you won’t make money from it. You have to lend them out to get a descent return on it. That also affected one or two mortgage banks. When you hear, some mortgage banks are not doing well, it is not because they didn’t raise capital or not into genuine business. It is either they had lent too much or because of TSA, they have to pay back some funds. The number of mortgage banks have dropped in the market after recapitalisation from over a 100 to 35 firms. Those 35 mortgage firms raised capital properly, and are doing okay. Their capacity has increased and amount of projects they are able to fund have also increased. They are funding bigger and better projects. Things have really improved in the market now.
Most individuals have lost confidence in the mortgage sector. How are you ensuring the sector re-absorbs these kind of people and provide them with needed assistance?
We have been doing a lot of advocacy, amongst ourselves also, we have reintroduced cooperation rather than competition. We have to compete with commercial banks. If we did not collaborate, bigger companies will kill us in the market. We ended up doing a lot of joint venture and co- funding all of that together. We syndicate some of these transactions together. That is the only way, we can survive, other wise, we will be wiped out by commercial banks. Another thing is that the mortgage business in Nigeria, people sees mortgage banks as where to collect money to buy houses. Nobody thinks it is where to save towards owning a house. Inasmuch as we are getting NMRC to get long-term funds, and we’re able to lend to people, now people are getting more confident and able to place money with us. It is beyond communication, seeing is also believing, people are knowing that we’re operating right, and now keep money with us. When they ask, we pay them back , and then they get confident to give us more. We’re seeing that in the market. Gradually confidence is returning back into the market.
Housing deficit in Nigeria is rapidly growing and homeownership currently stands at 25 per cent of the total population. What should the government do to facilitate social housing in Nigeria?
Social housing like any part of the world should be government driven. It does not mean that government must build all the houses themselves; the government should create policies that will enable social housing. In some other parts of the world, the government compels developers to set aside 10 per cent of their houses as social housing inside same estate. If government can introduce something like that, you will find out that social housing can come into Nigeria. Government has a role in enabling the environment for social housing. Social housing is even below what we call affordable housing. It’s for the poor who really cannot help themselves. In this case, government has to give land free and provide infrastructure for social housing to thrive. They can compel rich developers who are developing for the rich to pay out of their profit to develop social housing. There is no private individual who will give up his profit in a capitalist environment to do charity work. The government can also compel investors through for instance, Corporate Social Responsibility or Corporate Social Investment, to do social housing. In this case, tax incentives must be there for them. They have to create the policies to ensure moral suasion for the people to into social housing.
Mortgage banks have been in the forefront of calling for the increase in the share capital of the Federal Mortgage of Nigeria to N500 billion. Do you think that this would be judiciously used to improve its credit appraisal and disbursement mechanism?
As you rightly know, the issue of how capital should be used comes up where people do not trust the management. A lot of commercial banks have raised capital in the past, and their capital now runs into trillions now. If we have right people at the helm of affairs, nobody worries about how the funds are channeled as far as the money is being used to grow the market. On the level of capital where they are today, they are under capitalized. That shows in the level of their operations and we are saying they need to raise their capital. When they have a good leadership, they would be able to know whether it’s cutting edge technology, they want to invest in. As of today, they are stifled; they are not supposed to be spending the NHF. The NHF is people’s money. It’s supposed to be invested in a trust. If they are recapitalized, they may have to refund whatever might have been taken out from the fund. Those are the reasons, why they need capital. They can be using the fund to run their business, paying salaries or building branches and headquarter complex, those are what their profit and capital are meant for. They are not supposed to touch the fund they are managing. That’s why we are advocating that if they properly capitalized, they will run well.
In the commercial banks, BVN known as Banks Verification Number is a must for every customer. What is happening in the mortgage sector in that regard? Can we say, that the mortgage banks have been exempted in the Nigeria inter- bank settlement system? What is MBAN current position on this?
All mortgage banks have started BVN. The thing is that in order to enroll someone for BVN, you need to spend a lot of money and it’s expensive. A lot of us have chosen not to enroll people for BVN. We all deal with correspondence commercial banks; they enroll people on our behalf. Any commercial bank that enrolls people for BVN cannot turn back any customer, whether it’s their customer or not. When the customer gets a BVN number, he brings it to us and we do transactions with it. There is nobody we are doing transactions with today that does not have a BVN number. We make sure they all have a BVN. We are all linked to Nigeria Inter-Bank Settlement System Plc (NIBSS), and we can verify customer’s information from our different system.
MBAN in recent past adopted self-regulatory measures; have this option worked for the industry. How?
It’s working for the mortgage sub sector. First that the institutions are regulated, we ensure they submit their returns to CBN; they get sanctioned, if customers complain against them. We have disciplinary committee, we have partnered with CBN and Chartered Institute of Bankers of Nigeria (CIBN), we also have code of ethics for mortgage banks that have been released, and a set of fees for the industry. We are waiting for the Mortgage Bankers Committee to now approve them. A lot of changes is expect in next few months because of the new documents and recapitalisation of the mortgage industry. When the documents become operational, mortgage customers can easily call to make complaints and get redress.
In other climes, the secondary mortgage, there are secondary mortgage companies that promote mortgage market facility for residential mortgage loans. Do you think this is the way to go in Nigeria?
You know, mortgage banks own 50 per cent of NMRC, the company is a secondary mortgage refinancing institution that inject liquidity from the capital market to support mortgage loans, we have partnered with few commercial banks, the government and World Bank to make it a reality. In a month’s time, the shareholding structure may change, as we intend to raise for more capital and bonds. Today, the federal government owns 40 per cent of NMRC and commercial banks 10 per cent; we intend to raise a minimum of about N6billion in the next one month. It takes the capital from N7 billion to N13 billion. We also have the Tier 2 capital that is World Bank money that is about $50 million. The bonds are fully government guaranteed. The rates are not too high, it’s a percentage above issued to money banks. The bonds they raised so far are 15-year money. We are originating that for 20 years now.
• The Guardian