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Hike in PMI capital base: How prepared is
real estate sector?
Long before now, proponents of the Central
Bank of Nigeria’s (CBN) brand of radical reforms in the financial system
have been advocating that such should be extended to the Primary Mortgage
Institutions (PMI). They say many of them simply exist in name. But now,
signals have begun to emerge to the effect that the PMI may have their minimum
paid-up capital reviewed upward. Head, Property and Environment, Steve Omolale, in this piece takes a cursory
look at the preparedness of the PMI and concludes that the operators are
actually well disposed to the idea, after all.
There are
heightened fears that the Central Bank of Nigeria (CBN) directive to the
commercial banks in the country to jerk up their capital base to N25 billion by
May, next year, may be extended to the Primary Mortgage Institutions (PMI)
soon. In fact, as soon as the apex bank announced the policy initiative that
has been shaking the financial system to its foundation, stakeholders in the
real estate sector believe it is their turn to taste the Professor Charles
Chukwuma Soludo pill.
The inevitability of the
increase in capital base for the PMI was further revealed at the fourth yearly
retreat of the managing directors of PMI in Port Harcourt, Rivers State
capital, when the Director, Other Financial Institutions Department (OFID) of
the CBN, Mr. Sesan Bamishile, told them: “You should seek ways of shoring
up your capital base above the regulatory minimum to boost possible losses from
operations and engender depositors, investors and regulators’ confidence
in your institutions.”
The current regulatory
minimum is N100 million, up from N20 million. It was introduced in 2002.
Although operators in
the sector appear not to see anything wrong if the capital base is increased to
N2 billion as is being speculated, the bandwagon effects on the sector will
simply be like those in the commercial banking sub-sector. That is, mergers,
acquisitions, job loss and all the attendant problems. Besides, they say it may
lead to reduction in the number of projects being currently financed by the
existing PMI. Be that as it may, how prepared is the sector for this?
However, there is a
thing all of them seem to agree on: managers of the PMI need radical policies
to keep them afloat. Bamishile said this much.
His words: “For
PMI to survive the current wave of reforms in the financial system, the owners
and managers of these institutions would need to adopt radical policy changes
to strengthen the institutional framework and reposition the sub-sector.”
While some of them have
actually adopted the advocated radical policy changes without being prompted,
others appear to be snoring away by operating on the fringes. Indeed, only 47
of the PMI met the N100 million capital base as at December last year. What
this translates to is that about 35, still in operation, have not met the
minimum requirement.
Besides, as a pointer to
the fact that competition in the mortgage-banking sector promises to be fierce,
some of the commercial banks, who cannot meet the N25 billion minimum capital
base have applied to the CBN for conversion into mortgage banks. Others may
follow suit, as events unfold in the financial system.
Then, if the PMI capital
base is further jerked up, not all the 47 will be able to meet it. This may
lead to the collapse of these weak ones.
But, some stakeholders
in the sector are just comfortable with this. They say the apex bank needs to
separate the grain from the chaff in order to make the sector virile. While
some of the PMI are already gearing up for the increase by putting on hold a
few projects here and there, others say they are comfortably near the N2
billion expected to be announced.
In fact, Omega Savings
and Loans Limited, a subsidiary of Omegabank Plc, in anticipation of a new
capital base announcement, says it has put on hold the second phase of its
multi-million naira Blessing Kayode Estate, Lagos. It had earlier completed the
first phase.
It was expected to have
begun work on the phase two. That probably has to be after the anticipated
announcement of the new capital base, which signals from the apex bank have
continued to indicate that it might be earlier than expected.
If there is any PMI that
says it is fully prepared for the announcement, it is Union Homes and Savings
Limited, a subsidiary of Union Bank Plc. While one of its officials, who
pleaded for anonymity confirmed this, its financial records portray a PMI with
a strong base.
The firm, which prides
itself as the lead financier of housing construction in the country, has a
total asset of N42 billion as at March, this year.
Its shareholders’
fund as at March, last year, was N1. 613 billion, up from N1. 036 billion in
2002.
The official explained
that if the announcement eventually comes, “it is going to have a
positive effect on the system, with the public having more confidence than
before.”
His panacea for those
who are not prepared to meet the requirement is simple. They should simply
merge with stronger ones, while strong commercial banks with competence in the
real estate sector should establish PMI.
He also said the reform
might change the perception of an average Nigerian about mortgage financing. To
him, the focus should be to encourage Nigerians to make use of PMI “so
that as soon as you have a constant means of income, you should be able to
access mortgage loans with a short tenor, as it is done in the developed
countries.”
The Head of Corporate
Affairs and Marketing, Lagos State Property and Development Corporation
(LSDPC), Mr. Olusola Martins, believes that there is no PMI in Nigeria, adding,
however, that if the capital base of the PMI is jerked up, “we will have
the real PMI.”
His reason for believing
that Nigeria has no PMI is that “mortgage in the developed world is
practiced on a single digit interest rate with a long tenor, which is not the
case in Nigeria.
He added: “No
estate developer can cope with the interest rate the so-called PMI are charging
them because of inconsistence in the system. I believe the increased capital
base will lead to stronger mortgage system that will be able to support the
construction industry in strong term.
The Managing Director of Alpha Sam Nigeria Limited, a firm
of estate developers, Mr. Sanmi Lawal, stressed that such increase will be to
the advantage of the sector and decried a situation where some of the PMI are
not into real mortgage operations. To him, the real estate sector should be
prepared for any increase in capital base, as it will be to the benefit of the
sector.
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