CBN sets N6bn Minimum Capital for Proposed Mortgage Guarantee f Firms

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The country’s apex bank , the Central Bank of Nigeria (CBN), last week unveiled an exposure draft to regulate the operations of Mortgage Guarantee Companies (MGCs), as part of efforts to promote mortgage financing and advance home ownership in the country.

This, according to the accompanying circular signed by Kevin Amugo, CBN’s Director, Financial Policy and Regulation Department said, is also to deepen the mortgage market, is also in a bid to promote affordable financing, while ensuring a safe and sound financial system.

Companies seeking licences as MGCs, the CBN proposed in the exposure draft, shall maintain a N6 billion minimum capital, in addition to N100,000 non-refundable application; non-refundable licensing fee of N1 million; and N50,000 change of name fee.

Permissible activities of MGCs include: Full or partial guaranteeing of residential mortgage loans, investing in government securities, among others, in addition to assuming ownership of residential property in the event that a lender is unable to dispose of a foreclosed property.

If proposal is approved, MGCs can also issue bonds and notes to funds their operations; provide technical assistance to lenders on credit and business development related activities to increase pool of development expertise; in addition to other activities as may be prescribed by the CBN from time to time.

MGCs are allowed to invest in government securities, deposits with licenced banks, deposits held at the CBN; and other investment specifically allowed by the apex bank.

They are however not allowed to take any type of deposits; grant loans, whether consumer, commercial or mortgage; or originate primary mortgages. They are also not permitted to finance real estate construction, estate agency or facilities management, project management relating to real estate development, or management of pension funds/schemes. They also forbidden from transactions such as foreign exchange, commodity, financial derivatives (except hedging instruments), or equity trading; as well as other activity not expressly permitted by the CBN.

As part of good corporate governance practice, MGCs shall have a board comprising between seven and 11 members, with the number of non-executive members exceeding executive directors, including one independent director.

The executive directors shall hold office for a five-year term (10 years), which may be renewed only once; while non-executives are limited to three terms of four year each (total of 12 year). An executive director who has served the maximum 10 years, may be appointed Managing Director, who shall serve two terms of five years each.

No executive director is however allowed to transmute to non-executive director until after three years period.

The CBN also proposed that an MGCs cannot “declare or pay dividends out that will result in the capital adequacy ratio falling below 100 percent.




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