Aso Savings Union Homes acquisition creates mortgage behemoth

Nigeria’s mortgage industry is set to get a shake-up as the recent acquisition of Union Homes by Aso Savings and Loans Plc (ASO) has created the largest financial services firm in the country, by total assets outside of the banking industry.

The recently concluded transaction will see the combined entity becoming the largest mortgage bank in Nigeria with a market share of over 40 percent of the industry and a balance sheet size of N110 billion.

“A unified business platform for both Union Homes and ASO will deliver financial synergies that will maximise profitability, shareholder value, revenue per customer (plus other target indices) and increased market share,” one source privy to the deal spoke to BusinessDay on condition of anonymity because he wasn’t authorised to speak publicly.

“Operational integration of both entities is expected to span 3-6 months following which UHSL will be fully collapsed within ASO,” he said.

BusinessDay gathered that financial synergies will accrue primarily from a bigger post-acquisition balance sheet, while there will be increased ability to attract deposits and shore up liabilities due to renewed customer confidence.

The shared internal costs and economies of scale will also bring about an improvement in operational cost management.

“To this end, we expect to see improved operational and profitability ratios within three years post acquisition,” said the source.

The new entity will have an expanded client base and distribution network, as ASO stands to inherit almost 30 branches from UHSL, many in locations where ASO is currently not present, particularly in the southern parts of the country.

Aso Savings larger balance sheet is expected to help deepen home ownership and the growth of Nigeria’s small but rapidly expanding mortgage industry, which is challenged by high cost of capital for mortgage lenders amid a housing deficit estimated at 17 million.

The Federal Government set up a mortgage refinance company (NMRC) in 2013 to help address this anomaly by expanding the secondary mortgage market, allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders and mortgages in the market.

“We anticipate that the NMRC will stimulate the secondary market for mortgages,” said finance minister, Ngozi Okonjo-Iweala. “Our modest goal is to grow the active mortgages in Nigeria from 20,000 to 200,000 in 5 years.”

Sources told BusinessDay that with the new NMRC the larger Aso Savings could expand the tenure of its mortgages to between 15 and 20 years, rather than just 5 to 10 years.

“They could use short-term money and create long term mortgage asset, and sell those assets to NMRC for cash, to do similar mortgages,” another source said.

“NMRC is also giving mortgage lenders like Aso a chance to get relatively more affordable interest rates.”

The new combined entity is well positioned to expand aggressively as Nigeria’s population and income per capita grows.

The country’s rapid rate of urbanisation which the World Bank put at 51 percent in 2012 and an estimated 80 million people living in the cities is expected to spur the demand for housing.