- Trouble in Nation’s Mortgage Banks Over Liquidity Squeeze
A Crisis looms in the nation’s financial system as lack of funds hits the Primary Mortgage Banking (PMB) segment.
It was learnt that the situation which has become critical for one of the mortgage banks, as it no longer honours depositors’ claims, may soon result in its collapse and affect the sub-sector. As each depositor is only insured to the tune of N500,000, the collapse of PMBs would spell disaster for their customers.
The development could undermine confidence in the operations of the banks, set the national housing policy backward and lead to the collapse of some of the mortgage institutions.
The critically ill mortgagee found itself in the situation because it ignored the liquidity ratios, as it invested all depositors’ funds in assets that are now not easily convertible.
The inability of about 15 mortgage companies to pay premium contributions in 2016 is an indication of operational challenges in the sub-sector.
The Nigeria Deposit Insurance Corporation (NDIC) affirmed that about 15 of the 35 PMBs did not pay the insurance premium as at December 2016, a situation that put the customers at higher risk.
The Managing Director of NDIC, Umaru Ibrahim said the commission’s capacity to sustain its efforts in ensuring that insured institutions are put on the part of sustainable growth and development depends largely on the premium contribution, which is an amount paid periodically to the insurer (NDIC) by the insured (mortgage banks) for covering their risk.
Frontline economist and Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, said the challenge could be a corporate governance issue in one or two institutions, but not in the entire industry. According to him, the possibility of having one or two issues would be there, but as a quoted company, the regulators would handle matters right.
But Rewane said there might be crisis if more than 40 per cent of the operators could not pay their premium contributions to the deposit insurer. “It means they are not in business and the situation is no longer a challenge, but a crisis. It means some are just being there until the whole crisis manifests,” he said.
The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, described the failure of any deposit-taking institution, particularly a mortgage bank, to honour its obligations as partly a case of liquidity management, which boils down to corporate governance.
“Although the sub-sector is the weakest in the financial system, with total deposit liability that can easily be written off by the regulator, any shakeout will lead to losses in cash and perception.
“Every financial institution will become suspect if there is a distressed bank now. First, the sub-sector will be deserted. Second, even conventional banks will experience a cold response from customers. This is because not many know the differences. The mortgage refinancing company must be made to work more now,” he said.
He said that government’s policy of high interest rate on its risk-free securities at between 16 per cent and 18 per cent would not allow investments into the mortgage sub-sector, just as conventional banks would soon face the same effect.
NDIC spokesman, Hadi Birchi, reiterated that the commission’s mandate is to settle every depositor of failed financial institutions, first with the insured amount and second with as much as the assets of the company can provide.
While acknowledging that the commission is aware of the challenges in the mortgage banks and is currently looking for solutions, he said customers and other stakeholders should not panic.
Efforts to reach the spokesman of the Central Bank of Nigeria, Isaac Okorafor, through text message and calls were not successful.
At the weekend, an industry source told The Guardian that the number of defaulters on the premium contributions had decreased to 13, but affirmed that most of their investments (understandably housing projects) did not bring about the estimated returns.
“The economy is harder now and some who are expected to buy the houses are not forthcoming. The houses are there, but we cannot get money since they are not taken up,” the source said.
The chief executive officer of the mortgagee told The Guardian that the situation was tough, but that the company was doing its best to turn things around.
“The condition of the economy is also compounding the matter. There is no money and people are not meeting up to their obligations to the bank. The assets are there but you cannot easily convert them now because of the recession.
“I must admit that the projections of the bank did not turn up well. Yes, the liquidity ratios were well overshot, but I think the calculation was that the investments will turn up,” the bank boss said.
Also, the situation, which started about three years ago, has become so serious that the company failed to honour some customers’ demand in the last one year.
As at third quarter of 2016, the Nigerian Bureau of Statistics (NBS) could only report the sub-sector’s first quarter (Q1) activities on deposits, loans and interest rates, an indication of failing corporate governance structure.
Even with incomplete disclosures, the NBS said the sub-sector, made up of 35 institutions, had N78.1 billion in loans and leases; domestic debts of N65.6 billion; and National Housing Fund contribution of N9.7 billion in its books as at Q1.