Projected Mortgage Sector Growth Worries NDIC

James Emejo in Abuja

The Managing Director/Chief Executive, Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim yesterday expressed concern that the projected phenomenal growth of the mortgage sector, particularly the Primary Mortgage Banks (PMBs) could be catastrophic to the economy, unless they have a sound corporate governance and risk management structure to guide their operations.
The World Bank had estimated it would cost about N59.5 trillion to bridge the current housing deficit in the country.
Speaking in Abuja at the opening of the 2014 sensitisation workshop for operators of PMBs, the NDIC boss who referred to the global financial crisis of 2008-2009, which was largely attributed to the crisis in the US mortgage sector, said the corporation is currently working to forestall a repeat of the crisis, following federal government's effort to revive the mortgage sector in the country.

He also said the corporation was working to increase the minimum insurance cover for PMBs from the current N200,000 in view of the huge portfolio and risks they bear as well as introduce a risk- based premium assessing system for the mortgage firms.

"That way, we will be able to promote safer and best practices and in the process, the best manned and managed institutions will have less premium burden on them,” he said.

Ibrahim added that regulatory authorities, including the Central Bank of Nigeria (CBN) would work to ensure PMBs do not accumulate huge toxic assets like the recent scenario with the Microfinance institutions and Deposit Money Banks.

He said concerted efforts would be made to ensure risk management issues in the financial system are continuously addressed by developing capacity in the implementation of Basel II and III regulatory framework.

He said: "PMBs in the country 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."

According to him, PMBs ought to be interested in enhanced risk management standards since mortgage portfolios are predominantly on variable rates and highly sensitive to interest rates fluctuations.

He added: "For instance, an increase in interest rate could make mortgage repayment difficult and result in default which may give rise to toxic assets. Furthermore, new mortgages could become less attractive for consumers due to affordability pressures."
Nevertheless, Ibrahim stressed that PMBs should be able to assess a consumer’s ability to continue with mortgage repayments in the case of an interest rate hike as the lack of thorough and effective assessment could pose a major risk for the operators.

"Going forward, we hope to review the insurance coverage that we do provide, you are aware that right now it is N200,000 in case of any failure", he stressed.

Culled from: http://www.thisdaylive.com