Economic Confidential, June, 2009

NATIONAL

FMBN Raises N17bn for Recapitalisation

… Targets Informal Sector for Mortgage Facilities

The Federal Mortgage Bank of Nigeria (FMBN) has concluded plans to raise additional N17 billion through the floatation of bond to deliver housing to Nigerian masses. The new issue would be overseen by the Security Issuance and Market Development Department, a new unit created in furtherance of restructuring of the organisation.

The Managing Director and Chief Executive of the bank, Mr. Abdulsalam Y. Ahmed, at a media briefing revealed that the present capital base of the bank is N2.5 billion and had granted N41.958 billion to Primary Mortgage Institutions (PMIs) and estate developers out of N79.515 billion already approved for disbursement to beneficiaries as at end of January, 2009.

The banker who was recently appointed to the new position disclosed that the Federal Government was in the process of significantly raising the equity of the organisation because of the need for recapitalisation of the FMBN and an enhanced adequate budgetary funding meet the huge financing need of the Nigerian housing sector.

He said that FMBN between 2006 and January, 2009, made a cumulative collection of N41.963 billion through the National Housing Fund (NHF) scheme. Giving further breakdown of the disbursements, he explained that though a total of N29 billion and N50, 514 billion were approved for the Primary Mortgage Institutions and Estate Developers only N14.546 billion and N27.412 billion were respectively disbursed.

He said: "A comparison with similar secondary mortgage institutions indicates that FMBN's current capitalisation of N2.5 billion ($17 million) is inadequate compared to an average of $132 million of selected contemporaries. Re-capitalisation and consolidation of Primary Mortgage Institutions similar to banks and insurance companies as being proposed need to be carried out to improve the capacity of PMIs to generate the magnitude of quality mortgage loan necessary for the take off of the secondary mortgage market".

The FMBN boss who lamented that the nation's mortgage sector contribution to the Gross Domestic Product (GDP) was less than two percent, while it ought to contribute up to 50 percent, added that Nigeria supposed to have at least 700,000 units of houses per annum. He regretted that home ownership in Nigeria is currently about 25 per cent.

The bank has N100 billion Federal Government guaranteed bond and has issued N27 billion bond in 2006.

He listed that the turn-around in the operations of the FMBN would entail short term, medium term and long term objectives.  In the short term, he said it would entail supporting legal and regulatory frame work review, consolidating National Housing Fund operations to improve efficiency and effectiveness of financing workers/contributors' homeownership and debt recovery of non-performing loans to improve the bank's profitability and financial position.

In the medium term, he said the bank would engage in issue of bonds, attract foreign funding and investments, commence liquidity facility provision for mortgage originators as an expansion of its secondary mortgage operations, introduce mortgage and title insurance, and expand financing to the non-salaried informal sector, among others.

The bank had for the first time in 2007 issued a bond to raise N26bn to finance the purchase of houses being sold by the Federal Government to public servants in line of government’s policy of monetisation.  Ahmed said the strategies being adopted by the National Housing Fund can no longer cater for the housing needs of Nigerians, adding that there was urgent need to explore other sources of funds and diversify into other products. He also put the home ownership rate of Nigeria at 25 per cent.

A document from the bank showed that Estate Development Loans approved by FMBN under the NHF scheme has hit N50.51bn while loans approved for Primary Mortgage Institutions (PMIs) rose to N29bn by the end of January.

The Economic Confidential gathered that the bank planned to raise money through foreign borrowing as securitisation would be the major focus of the bank in the years ahead. The FMBN boss confirmed that: “Securitisation has proven to be a number of advantages including economic benefits in connecting the capital and financial markets by converting financial assets into capital market commodities resulting in lower funds. It improves housing affordability by engendering the length/tenor of funds, improves flow of funds into the housing sector and better allocates risks inherent in the housing finance sector.  Securitisation is also a deep and potential source of funds. It can spawn related industries by introducing new asset classes, improve competition and specialisation with the resultant positive effects on efficiency, lower cost of funds and reduction in margins/interest rate spreads.”

The equity base of the bank was too low to address the housing challenges facing the organisation. Currently, the bank’s equity base is N5bn and only 50 per cent has been paid. Equity in the bank is split between the Ministry of Finance Incorporated and the Central Bank of Nigeria. There are discussions with management of FMBN with the CBN and the Presidency to significantly address the low equity base of the bank. The new management wants to move the bank from serving those in the formal sector through the NHF to incorporating those within the informal sector who contribute 70 per cent of the nation’s Gross Domestic Product.