CBN Sets N6bn Minimum Capital Requirement for Mortgage Guarantee Companies 

CBN Governor, Mr. Godwin Emefiele

CBN Governor, Mr. Godwin Emefiele

By James Emejo in Abuja

The Central Bank of Nigeria (CBN) has set the minimum capital requirement of N6 billion for the operation of Mortgage Guarantee Companies (MGC) in the country.

In an exposure draft posted on its website, it pointed out that the licencing of MGC would deepen the mortgage banking sub-sector, through increased market access to mortgage finance and sharing of credit risk with mortgage lending institutions by issuing guarantees to reduce or replace equity contribution that would otherwise disqualify mortgagors from accessing mortgage as required by the uniform underwriting standards.

According to the central bank, the proposed regulation was aimed at ensuring that MGCs when licenced operate in a safe and sound manner on internationally acceptable principle, standards and good practice in mortgage guarantee.

The regulation, among other things, stipulates the basic requirements for the MGC’s principal line of business of guaranteeing mortgages for lenders based on the security of residential mortgage assets and sets the capital requirements including minimum paid-up capital as well as permissible investments and liquidity requirements.

Essentially, the regulation bars the MGCs from acceptance of demand, savings and time deposits or any other type of deposits as well as from financing real estate construction or management of pension funds/schemes.

It is also prevented from granting consumer, commercial or mortgage loans among other restrictions.

On the other hand, the MGC is expected to engage in full or partial guaranteeing of residential mortgage loans; invest in government securities and other approved investments and assume ownership of residential property in the event a lender is unable to dispose of a fore-closed property-provided that such holding shall not exceed 20 percent of its shareholders’ fund unimpaired by losses without the Bank’s prior written approval.

The MGC is further allowed to issue bonds and notes to fund its operations among other activities.

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