The Managing Director of Abbey Mortgage Bank Plc, Mr. Madu Hamman, speaks on the bank’s journey in the past 30 years and the challenges confronting the mortgage and real estate sectors in Nigeria.

Mortgage banking appears not to be gaining significant traction in developing countries like Nigeria compared to what happens in the West. Why is it so?

The word “developed” in the term “developed economies” underpins the advanced growth and developments in most sectors of their economies, including the housing and mortgage sector. There are so many reasons why the comparison in the growth of the mortgage banking sectors between Nigeria and a developed country may be like comparing apples with pears. Negative macroeconomic factors, such as high-interest rates, cost of building materials, legal problems, rigorous property registration and title documentation process, infrastructural inadequacy, and poor credit information management for borrowers, amongst others, impede the progress of economic growth and development. In addition, there are also the challenges associated with high and volatile inflation rates, selling of a single property to multiple persons, double-digit interest rates, low earning power, and the absence of a more advanced ecosystem in the mortgage sector, and most importantly the issue of lack of trust.

The housing deficit number in Nigeria is still very high. Why are mortgage banks not tapping into this huge opportunity?

Mortgage banks are licensed to carry out primary mortgage banking activities in Nigeria. This has limited the ability of the mortgage banks to actively participate in the real estate industry-like participating in property leasing, estate agency, facilities management, or even project management. However, we focus on resolving the housing deficit problem, by granting construction finance to developers and mortgages to individuals. Recently, we introduced a new product, the “Save to Own” account which encourages individuals to save towards their equity for homeownership.

Do you think the mortgage banking subsector is due for another recapitalisation?

No, this is because microfinance banks today are required to have only 10 per cent of the capitalisation requirement from mortgage banks. Recapitalisation will also lead to operational difficulties for some of the mortgage banks, which could lead to consolidation and winding up of banks which has an overall negative impact on the industry. It would lower the number of mortgage banks in Nigeria and defeat the whole objective set to combat the housing deficit entirely.  However, a strong capital base can absolve losses arising from non-performing liabilities which is one of the worrying trends in the mortgage sector. Due to the fact that mortgage sector loans are usually tenured, people tend to default before the expiration of the mortgage loan. We have put in place carefully thought-out measures to curb defaults in loans and this has reduced our rate of non-performing loans. I can proudly say that all the loans we granted in 2021 are performing.

As a big and experienced player in your sub-sector, how would you rate the non-performing loans in the mortgage banking industry and what are the factors driving the figures?

Following the implementation of our strategic transformation agenda in 2020, Abbey Mortgage Bank has been able to control and reduce its non-performing loan significantly. From 2020 to date, our NPLs have fallen by over 200 per cent. The rates of NPLs in the industry are usually high, circa 10 per cent to 20 per cent, but recently we have seen a downward trend in NPLs. These figures are justified with due diligence from the bank ensuring only credit-worthy customers deserve loans. However, due to the increasing economic hardships, there may be a reversal of this trend at the industry level. So we remain quietly cautious.

Do you think inflation and other macroeconomic factors increasing the cost of property and building have had any spiral effect in mortgage banking too?

These macroeconomic factors do not just affect the mortgage industry but the economy at large. The inflationary pressure reduces the purchasing power of our customers and depreciates the value of the country’s currency. These factors affect lenders as developers who have borrowed from the mortgage bank find it difficult to complete their projects and payback. These developers are also dependent on the off-takers to buy their properties for revenue generation, to pay back the construction finance loan, and not default. In addition, the disposable income of borrowers will reduce, leading to reduced disposable income which affects their ability to meet their obligations.

As a leader in the industry, what do you think the government should do to boost the growth of mortgage banks?

The government is doing well to ensure the growth of the mortgage and housing industry through several interventions from the CBN, FMBN, NMRC and others. Despite these interventions, both mortgage and housing industries still struggle. The government should ensure the amendment of constitutions and the Land Use Act. Ensure infrastructure provision, speedy and equitable land allocation, and grant of tax incentives to investors. They should enhance the operations of the real estate and mortgage markets, enact enabling laws to engender the automation and real-time record of activities, and of course strengthen the mortgage sub-sector through long-term funding.

What would you say are some of the challenges facing this industry

The challenges have been quite a lot. Everybody knows the issues we have around our Land Use Act and how difficult to acquire transfer in the mortgage practice. It is a long period and an expensive venture which is one of the challenges that has been hindering the growth of the sector.  A lot of clamoring and lobbying of the government to try to amend the Land Use Act to allow for ease of transaction on landed properties. Where you must get government consent for each transaction, we find very bureaucratic and costly. It’s time-wasting for transactions and is expensive for customers. Other challenges include the high default rate within the market and the difficulty for banks to realise their investment as well as the marginal gain in investment as such customers capitalize on that to pay up their default.

Abbey Mortgage has been in the industry for 30 years now. How would you describe the evolution of the industry overtime?

It’s a big privilege for every organisation to celebrate a major milestone, and we at Abbey are very privileged in the mortgage sector to be celebrating the 30th anniversary because I believe we are one of the resilient mortgage banks still operational since the first mortgage bank licenses were issued. It was tough but we remain standing 30 years later, whilst others in the business were not as fortunate.

The mortgage sector or primary mortgage banking came into existence by the Mortgage Institution Act of 1989 which enabled private players to come into the market.  Before then, the Federal Mortgage Bank of Nigeria was the only institution in the mortgage banking sector. So the Federal Government deemed it necessary to de-centralise the mortgage sector to allow private investors to come. This decision brought about the first batch of Primary Mortgage Banks to be licensed in 1991.

Abbey was incorporated as Abbey Building Society in August 1991 after which we applied for our licence in October 1991. We were part of the second batch of PMBs to be licensed in February 1992, we then opened out doors to our first customer on March 11th 1992 when business commenced.  Initially, the sector was seen more as a “greenfield” area for investors who may or may not have fully understood the nature of the business.

By 1994, there were close to 300 licensed mortgage banks operating in Nigeria and the competition was so stiff. However, owing to the fact that most mortgage operators did not understand the dynamics of the business or overlooked the expectations of their role, and engaged in risky investments and over-ambitious products to entice the general public; by 1995 the “bubble” burst and this led to the crash that affected both finance houses and mortgage banks known as primary mortgage institutions. The ripples effect impacted a few banks that crashed, having a wider impact not only on the mortgage sector but on the financial sector as a whole. During the recovery period, the Federal Government took measures to clean up and provide regulatory measures to prevent a reoccurrence.

In 1997, the Central Bank of Nigeria became the major regulator of the sector, ensuring compliance with clear operational guidelines and structure which has enabled the sector to grow and thrive.

What was the competition like then and how would you describe it today?

The competition 30 years ago was quite stiff because of the number of players in the market. We were in the market where there were four or five mortgage banks, but new entrants were not consistent, leading to customer mistrust. So, as the failing banks left the market, competitiveness continued as the major commercial banks were, and are still competing with the mortgage banks on mortgagee offerings. But when you have been in the industry for as long as 30 years, you will become mature and understand the ever-evolving market and be able to evolve with it.

Source : Punch