Though the news of the revocation of operating licences of two otherwise giant primary mortgage banks (PMBs), Aso Savings and Loans Plc and Union Homes Savings and Loans Plc did not come as a surprise to many, the action holds a lot for the mortgage sector.
The Central Bank of Nigeria’s (CBN) action, taken in the best interest of the sector and its customers, will raise further concerns about that sector, which, according to its close watchers, has remained a fledgling long after recapitalization and consolidation.
In 2008, the primary mortgage institutions (PMIs) were recapitalized and consolidated to address their capital base problem. From the statutory N100 million capital base, the PMIs were asked to recapitalize to the tune of N2.5 billion and N5 billion for regional and national licenses, respectively.
Despite that action, many of them are still struggling, and the sector as a whole is not seen to be making much impact on individuals who need mortgage for homeownership and the larger economy. Its contribution to GDP is not yet more than 1 percent.
“What the CBN has done is good and a right step in the right direction. The action on Union Homes, particularly, had been long overdue. It is, however, unfortunate that the two institutions, which had been major players in the sector, had to go this way, and that speaks volumes about the health of that subsector of the financial system,” an operator who pleaded anonymity, noted.
According to the operator, many depositors in those two banks will have their fingers burnt because, according to him, the Nigeria Deposit Insurance Corporation (NDIC) has said it will pay only N2 million of the insured deposit, meaning that depositors who have more than that amount have to wait till after the liquidation of the banks and their assets sale.
“That does not encourage investor-confidence in the sector; that will further decrease the bottomline of the existing banks as customers may react negatively to this development,” the operator noted.
The CBN recently revoked the operating licences of the two banks, citing ongoing efforts to strengthen the mortgage sub-sector and ensure greater compliance with financial regulations.
In a statement, the Acting Director of the Corporate Communications Department at CBN, Hakama Sidi Ali, explained that the revocation of the licences followed significant breaches of the Banks and Other Financial Institutions Act (BOFIA) 2020 and the Revised Guidelines for Mortgage Banks in Nigeria.
Both banks were found to be under-capitalised, with share capital below the minimum requirement for their licence categories, insufficient assets to meet liabilities, and failure to comply with several CBN directives.
The CBN explained further that its actions were necessary to safeguard the financial system and protect depositors. “The CBN remains committed to its core mandate of ensuring financial system stability,” the statement read.
