PROPERTY NEWS

THE FEDERAL Mortgage Bank of Nigeria (FMBN) has concluded plans to raise additional N17 billion through the floating of bond to deliver homes to needy Nigerians. 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.

Managing Director and Chief Executive, Mr. Abdulsalam Y. Ahmed, disclosed recently in Abuja that the apex mortgage house's capital base stood at N2.5 billion and had granted N41.958 billion to Primary Mortgage Institutions (PMIs) and Estate Developers (EDs) out of N79.515 billion already approved for disbursement to beneficiaries as at end of January, 2009.

Ahmed, 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 its recapitalisation and an enhanced adequate budgetary funding to meet the huge financing need of the Nigerian housing sector.

He said that, between 2006 and January 2009, the organisation 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 PMIs and EDs, 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 PMIs similar to banks and insurance companies as being proposed and may 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 was supposed to have at least 700,000 units of houses per annum. He regretted that home ownership in Nigeria currently stood at about 25 percent.

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

He added that the turn -around in the operations of the FMBN would entail short -, medium - and long -term objectives. In the short term, he said it would entail supporting legal and regulatory frame work review, consolidating NHF 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 N26 billion 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 NHF could 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.

An FMBN document that Estate Development Loans (EDL) approved by FMBN under the NHF scheme has hit the N50.51 billion mark while loans approved for PMIs rose to N29 billion by the end of January.

The apex mortgage house is planning to raise money through foreign borrowing as securitisation would be the major focus of the bank in the years ahead, according to Economic Confidential, an online financial magazine in a recent posting.

Ahmed stated, "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."

According to him, the institution's equity base was too low to address the housing challenges facing it, adding that 50 percent of the N5 billion equity base was 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.

In a recent development, Economic Confidential has disclosed that the FMBN may pursue legal actions against its bad debtors. The bank has so far recovered N2 billion from its debtors, which include popular past political office holders, politicians, businessmen and religious leaders.

The development came as the CBN allays the fear of the public on speculations of new damaging report on Nigerian banks, insisting that examiners had concluded the audit of 11 of the 14 banks not included in the first exercise, and that "based on the reports received so far, the clear indications are that the bulk of the problems have been effectively dealt with in the first audit round and no decision has so far been taken on these 14 banks."

While the CBN's position was contained in a statement by the bank's spokesman, Mohammed Abdullahi, the position of FMBN came from Ahmed, the CEO.

According to the online news service, the FMBN requires a massive recapitalisation to enable it fulfil its mandate of providing the needed finance to meet the nation's housing needs and was compelled to issue the last warning to defaulters.

FMBN officials were quoted as saying in a recent publication, "Following several demands notices and in line with the ongoing sanitisation in the banking industry, it has become necessary to request defaulting customers to regularise their accounts within 21 days which will expire on Monday October 5, 2009."

The bank which has so far recovered N2.093 billion non -performing facilities from mortgage institutions mostly states -government owned across the country as at July 2009, may however resort to using the anti -corruption and security forces by the end of the deadline through all necessary legal actions, including regulatory agencies against the defaulters.

The major debtors in the bad debts included CITEC International Estate Limited owned by Oludare Bello, which owes N1.7 billion; Cambial Limited owned by Yemi Obadeyi owing N2 billion; and Same Global System Limited owned by Ehi Musibau and Sijuades owing N1.6 billion.

Others include Chief Okoya Thomas whose company, Netconstruct Nigeria Limited, owes N454 million; Major General Magoro whose company, Modular Limited, owes N332 million; Hajia Amina Abubakar of Imani and Sons Limited that owes N249 million; Alhaji Lateef Jakande of Good Homes Estate Limited that owes N219 million; Apostle Hayford Alile of Shelter Initiatives Limited that owes N295 million; Dr. Yemi Ogunbiyi of Tanus Property Development Company Limited that owes N198 million; and Chief Gabriel Karibo family, whose company, Atasi -Isi Supplies and Services, owes N723 million.

Ahmed recently disclosed that the bank needed N40 billion (about $132 million) capital base in order to effectively carry out its operations. He said the bank's N5 billion (or $17 million) capital base is grossly inadequate in view of the magnitude of its mandate to bridge the housing finance gap in Nigeria, which runs into trillions of naira. The FMBN's current capital base is insignificant when compared with an average capital of $132 million held by similar institutions in some other countries.

The capital base is yet to be fully paid up due to inability of CBN and the Nigerian Social Insurance Trust Fund (NSITF) to pay their equity contributions of N1.5 billion and N1.0 billion respectively, representing 30 per cent and 20 per cent of the current approved capital base.