The efforts of Nigeria Deposit Insurance Corporation (NDIC) in addressing the challenges of Primary Mortgage Banks (PMBs) can only be successful if the operators can embrace good corporate governance and sound risk management practices, according to Umaru Ibrahim, managing director/CEO of NDIC.
A PMB is a company licensed to carry out mortgage financing, real estate construction financing, acceptance of savings and time/term deposits and acceptance of mortgage-focused demand deposits in Nigeria. Other functions carried out by a PMB are drawing from mortgage funds (e.g. National Housing Fund Facility) for on-lending and provision of financial advisory services for mortgage customers. A PMB is therefore expected to source for savings from individuals, organisations, companies and investment outfits and utilise such deposits by providing construction finance for developing houses and mortgages to people who want to buy such or any houses.
In addition to that, all PMBs also have a responsibility of accessing the National Housing Fund (NHF) managed by the Federal Mortgage Bank of Nigeria (FMBN) on behalf of contributors who wish to apply for such mortgages from the FMBN.
However, Ibrahim acknowledges that weak corporate governance and poor risk management frameworks can result in risky behaviours by the PMBs and this can result in the creation of huge toxic assets and ultimately put insured deposits at risk.
Given the recent regulatory efforts and the associated high cost of cleansing the system of toxic assets of DMBs through the Asset Management Corporation of Nigeria (AMCON), the supervisory authorities are deeply concerned about the build-up of toxic assets of the microfinance banks (MFBs), which stood at about 45.70 percent as of December 2013, as against the prescribed maximum of 5 percent.
“Our attention is now being focused on both the MFB and PMB sub-sectors so as to address the emerging challenges. Our efforts can only be successful if the operators can embrace good corporate governance and sound risk management practices. We cannot afford the repeat of 2008/2009 crisis,” he says in Lagos at sensitisation workshop for operators of PMBs held last month.
He believes that PMBs in Nigeria can create significant impact if and if only they adhere to recommended corporate governance practices based on effective and sustainable risk management practices as instituted by regulatory authorities. In particular, PMBs should be interested in enhanced risk management standards because some mortgage portfolios are on a predominantly variable rate and therefore it is highly sensitive to interest rate fluctuations.
“While I urge the PMBs to look deeper into emerging risk management issues at their various institutions, I want to assure you that both the CBN and our self, are making concerted efforts to ensure that risk management issues in the financial system are continuously addressed. To this end, we are rapidly developing capacity in the implementation of Basel II and III,” according to Umar.
Adewale Adeleke, managing director, Corestep Microfinance Bank Limited, Lagos, says risk management has become a very vital aspect of business appraisals in today’s contemporary economies. The attention that the last governor of CBN accorded risk management has been commendable and applauded by the outside world.
Mortgage banks had their own share of recapitalisation, bureau de change we recently forced to merge and come out stronger.
HOPE MOSES-ASHIKE
