CBN sets N10bn minimum capital base for mortgage firms

The Central Bank of Nigeria (CBN) has set a minimum capital requirement of N10 billion for Mortgage Guarantee Companies (MGCs) in the country.

The new regulation, according to its circular: ‘Regulations for the operations of mortgage guarantee companies in Nigeria, is an improvement upon the exposure draft on the operations of Mortgage Guarantee Companies, issued last year. The apex bank explains that the licensing process for MGCs will consist of two stages: Approval in Principle (AIP) and Final Approval.

The directives add that the new financial requirements might be varied as considered necessary. The new requirements were a minimum paid-up capital of N10 billion; a non-refundable application of N100,000; a non-refundable licensing fee of N100 million and change of name fee of N50,000. The CBN stated that the MGCs must not engage in activities such as acceptance of demand; savings and time deposits; grant consumer, commercial or mortgage loans, among others.

It also said that a MGC must maintain a capital adequacy ratio of more than 100%, determined by comparing the available solvency margin with the required solvency margin.

A Mortgage Guarantee Firm is a financial institution established to provide guarantees or partial guarantees to lenders against losses resulting from borrowers’ default on residential mortgage loans. The MGCs’ objective, according to CBN, is to “support mortgage originators such as Primary Mortgage Banks (PMBs) and commercial banks to increase mortgage lending by guaranteeing or partially guaranteeing against losses resulting from borrower defaults on their residential mortgages.”

They can also provide technical assistance to lenders on credit and business development-related activities to increase industry expertise, and other activities as may be prescribed by the CBN from time to time.