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CBN pegs capital requirement for establishment of MGC at N10bn

The Central Bank of Nigeria (CBN) on Tuesday fixed the minimum paid-up capital requirement for establishment of Mortgage Guarantee Company (MGC) at N10 billion.

The CBN and the bankers committee had in August this year introduced the mortgage guarantee company which is supposed to help de-risk the mortgage sector and help to get some funding back for mortgages that are bad.

The CBN on the same day issued a circular to all stakeholders in the mortgage sub-sector, on ‘regulation for operations of mortgage Guarantee Company of Nigeria’ and signed by Chibuzo Efobi, for director, financial policy and regulation department, CBN.

The banking sector regulator has introduced several reforms and institutions to enable mortgage lenders to achieve the mandate of creating mortgages to improve homeownership in Nigeria. The reforms have all been within the framework of the Financial System Strategy (FSS) 2020 and resulted in the revision of the Guidelines for Primary Mortgage Banks to address capital requirements, improve corporate governance and restrict permissible activities to mortgage lending and real estate construction financing.

It also led to the birthing of a housing finance programme that focused on removing the constraints of the paucity of long term funds for mortgage lending, improving underwriting standards and overcoming foreclosure difficulties, among others.

One of the components of the housing finance programme is the establishment of mortgage guarantee companies (MGCs) to further deepen the mortgage market through increased access to mortgage finance and sharing of credit risk with mortgage lending institutions.

MGCs facilitate increased access to housing finance by reducing or replacing the requirement for equity contribution that would otherwise disqualify mortgagors from accessing mortgages as required by the uniform underwriting standards. As a credit risk transfer mechanism for mortgage lenders, MGCs enable management of portfolio concentration risk and serve as a basis for capital relief in the computation of capital adequacy ratios on mortgage assets.

The guideline contains other information such as requirements for a grant of Approval-In-Principle, the requirement for granting of final license, Conduct of Pre-Licencing Inspection, requirements for commencement of operations, Post-commencement Requirements, and corporate governance requirements among others.


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