MONDAY, 21 JUNE 2010 BY CHINEDUM UWAEGBULAM, ENITAR UGWU (LAGOS) AND MATHIAS OKWE (ABUJA)

 

 

Fresh efforts by the Central Bank of Nigeria (CBN) to stabilise the nation’s financial sector have paved the way for the increase of the capital base of Primary Mortgage Institutions (PMIs) from N100 million to N5 billion.

 

 

A new directive for the operators in the PMIs to increase their capital base was conveyed to them through a circular signed by the Acting Director of Banking Supervision, Joseph Ajewole. The circular also stipulated new guidelines for the operations of the sector. Ajewole said that the new mortgage policy for the PMIs, came as part of the initiatives for reforming the nation’s financial system to enhance the quality of banks and ensure their stability.

 

 

Also, the CBN is to be assisted by the World Bank in a bid to set up the Asset management Company of Nigeria (AMCON). A source in the apex bank said that the World Bank would help especially in the technical areas of the company in order to make it a huge success.The CBN spokesman, Mohammed Abdulahi, told The Guardian in a telephone interview that the CBN had been collaborating with the World Bank in all its capacity building programmes.

 

 

The proposed increase in the PMIs’ shareholders’ fund is the fourth in the history of mortgage banking in the country. The initial minimum share capital for PMIs was N5 million; a figure that was first moved to N20 million and later to N100 million.Although, senior officials of the umbrella body of the PMIs, Mortgage Banking Association of Nigeria (MBAN) confirmed the development to The Guardian, they hinted that the final draft of the guidelines was being worked on to include inputs from stakeholders. The consolidation period for the mortgage firms, according to sources will be between 18 and 24 months.

 

 

The announcement of the new shareholder’s fund has brought anxiety to some of the operators, as the expectation had been an increase to N2 billion. Statistics show that 15 PMIs have hit the N1billion mark in shareholders’ funds while about five others had accumulated to over N3.5 billion. Expectations are high for mergers and acquisitions within the sector, especially among independently owned mortgage firms. Some of the PMIs that are subsidiary of banks are expected to scale through the hurdle easily.

 

 

A major highlight of the mortgage reform is the cancellation of mortgage engagement in property management and equity investment in property development. Others are new prudential requirements that include capital adequacy ratio: Minimum 10 per cent against risk assets, maximum equity investment holding of 25 per cent of shareholders’ funds unimpaired by losses and minimum of 75 per cent of total mortgage assets for residential commitments.

 

 

Official estimates show that about 65 PMIs are currently in operation, but as at December 2006, the total assets of the 36 mortgage firms that rendered returns to Nigerian Deposit Insurance Corporation (NDIC) were N91 billion. The sum of N50 billion, representing 70 per cent of the figure was in placements and other investments while only N21 billion or 30 per cent of the total sum was in loans and advances.The total assets of the PMIs increased from N55 billion to N91 billion over the last five years. About 292 PMIs were licensed between 1990 and 1998. In July 1997, Federal Mortgage Bank of Nigeria (FMBN), which later handed over 195 firms to CBN in 1998, revoked the licences of 97 of them.

 

 

CBN records also show that by June 2003, only 59 of the PMIs with N32.44 billion in cash and balances, loans and advances worth N12.28 billion and aggregate assets of N55.20 billion rendered periodic statutory returns. Total liability stood at N36.45 billion during the period and shareholders’ funds amounted to N7.64 billion.When established, the AMCON will take over the toxic assets (non-performing loans) in the banking industry and allow the banks to run on a clean slate.The World Bank Board of Executive Directors recently approved a $500 million development policy credit to support Nigeria’s economic reforms in the financial sector and public financial management. The credit is in response to the current global financial crisis.

 

 

“The loan is intended to provide budgetary support for the Federal Government of Nigeria to partially off-set the fiscal impact of the crisis as well as maintain its current economic reform path in the financial sector, fiscal policy and financial management, and governance,” said Michael Fuchs, the Lead Financial Economist and Task Team Leader.This assistance package builds on strong government ownership of a medium-term reform programme, which consolidates the successful record of economic management and reforms since 2001, while putting emphasis on cushioning the damaging impacts of the financial crisis on those at the poorest of the poor.

 

 

Commenting on the assistance, Country Director for Nigeria, Onno Ruhl, said: “The benefits to be derived from the programme include maintaining confidence and stability in the financial system, strengthening the banking system, supporting reforms spearheaded by the CBN, as well as supporting the government’s fiscal and financial management, including the objectives of the 2009 budget that focuses on maintaining fiscal stability while raising government investment spending to accelerate non-oil growth.”The operation involved extensive consultations with a wide array of government agencies and other donors.

 

 

Earlier, the hint on the world bank’s likely involvement in the establishment of the AMCON was dropped by the bank’s Senior Economist, Finance and Private Sector Development, Ismail Radwan in a telephone interview with The Guardian.According to him, the World Bank’s assistance can come inform of helping out with funding, technical assistance or both, provided the CBN requests them.

 

 

He had described the plan to set up AMCON as a step in the right direction, adding that, “this is why the World Bank is eager for the project to succeed in Nigeria.”Throwing more light on how the AMCON operates in countries of the world, he explained: “First, they issue government notes, give them to banks, then take the toxic assets in turn with discount, then sell them off within two to three years, make profit and redeem the papers.”He stressed that unless enough liquidity was injected into the banking sector, it would be impossible for banks to start lending to customers.

 

 

This is even as the CBN at the weekend is working out an arrangement whereby banks can transfer their bad loans into AMCON in exchange for certain considerations that can be in form of government bonds.Also, the terms of the transfer of bad loans will depend on various factors including, perceived fair value of bad loans and risk-sharing arrangement between AMCON and the bank, the CBN source said.

 

 

He revealed that that is one of the reasons why the apex bank is pushing for banks to recognise losses up front that would require agreement between banks on asset transfer values, different asset quality, policies by different banks and operational issues to transfer assets for a new platform.The AMCON Bill which proposes a company to buy the toxic assets of some ailing commercial banks in the country is ready for President Goodluck Jonathan’s assent. The AMCON Bill is expected to buy the toxic debts of banks and free up their books and encourage lending. The company will start with a minimum of N20 billion capital.

 

 

Meanwhile, Nigeria’s dream of diversifying her economy from crude oil dependent is beginning to pay off as there has been an upsurge on export activities by entrepreneurs in Nigeria.The Nigerian Export-Import Bank (NEXIM), which made the revelation, said it had received funding requests for bankable projects and transactions in excess of N70 billion and $322 million (about N48.3 billion).

 

 

But because the NEXIM capitalisation is just N50 billion, far below the rising funding requests, the bank has appealed to its owners – the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance – to raise its capital base to meet up with the rising demand by exporters.The CBN Governor, Mr. Sanusi Lamido Sanusi and the Managing Director of NEXIM,  Mr. Roberts U. Orya, both made this known at the weekend at ceremony to send-forth the immediate past Board Chairman of NEXIM, Mr. Tunde Lemo and the welcoming of his successor, Dr. Kingsley Chiedu Moghalu, who is the current Deputy Governor, Financial Sector Surveillance at the CBN. The post of the NEXIM Board Chairman is reserved for whoever is in that position at the CBN.

 

 

Sanusi assured that the CBN was poised to consider the request expeditiously because of the place SMEs and export play in a nation’s growth and development.Orya had explained that the request for the raise in the capital base of the bank was in line with the plan by the current board to embark on the transformation of  NEXIM to enable it undertake its mandate.He added: “Arising from increased government focus on economic transformation and development, NEXIM Bank, as part of its corporate transformation, is positioning itself to be at the fore-front of the economic development of the country.

 

 

“Some of the main pillars of that repositioning are the institution of best- in-class corporate governance and robust risk management frame-work. We aim to imbibe the best practices of the leading Export Credit Agencies (ECAs), which are instruments of economic growth contributing to the GDP, generating employment, foreign exchange earnings and reducing poverty in addition to other developmental objectives.

 

 

“With current funding requests for bankable projects and transactions in excess of N70 billion and $322 million, which are capable of creating a minimum of 20,000 direct jobs and generate over $75 million yearly in foreign exchange earnings, the bank is poised for the required support from its stakeholders.“It is, however, noteworthy that NEXIM Bank is relatively undercapitalised compared to most ECAs. Therefore, the current level of funding cannot power the desired growth in and diversification of Nigeria’s non-oil export.’’

 

(Source:Guardian)