DETERMINANTS OF FINANCIAL PERFORMANCE OF LISTED PRIMARY MORTGAGE BANKS IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1           Background to the study

Performance of a corporation whether profit or non-profit making is of great importance as it serves as an indicator of a healthy economy of a nation (Almajali, Alamro & Al-Soub, 2012). According to Iswatia and Anshoria (2007), performance is the function of the ability of an organisation to gain and manage its resources in several ways to develop competitive advantage. The performance of Primary Mortgage Banks (PMBs) in the economy is usually of major concern to most governments, because PMBs play a significant role in the mortgage sector by serving as the primary lenders in the sector. The sector’s contribution to Gross Domestic Product (GDP) stood at 0.5 percent (Kumo, 2014). Furthermore, stakeholders in the housing finance sector are of the view that the sector can contribute up to 10 percent of GDP if more attention is given to mortgage market (Azuh, 2013).

Primary Mortgage Banks (PMBs) are licensed by Central Bank of Nigeria (CBN) and Federal Mortgage Bank of Nigeria (FMBN) to operate as a mortgage outfit that will collect deposit and support individuals and corporations in meeting their housing needs (CBN, 2007). In addition, it serves as financial intermediaries in housing finance sector. These banks operate under the coffers of the National Housing Fund (NHF). NHF (now National Housing Trust Fund) was promulgated by Decree No.3 of 1992, and conferred with the responsibility of facilitating the constant flow of low cost funds for long term investment on housing, to nurture and maintain a stable base for affordable housing finance and to provide incentives for the capital market to invest in property development (Latinwo, 2002 and Sanusi, 2003).

According to Adedokun, Akinradewo, Adegoke and Abiola-Falemu (2011), it is in recognition of finance in housing delivery that warrants the setting of PMBs to facilitate the delivery, being the sole intermediary between the FMBN (apex lending institution in housing matters) and the mortgagors in disbursing the proceeds of NHTF.

Housing plays a pivotal role in growth and national development as it directly affects not only the well-being of the citizenry, but also the performance of other sectors of the economy (Adedeji, 2005). Housing has been universally accepted as the second most important essential human need; as it impacts positively on productivity because a decent house significantly increases workers health, and consequently growth (Adedokun et al., 2011). The provision of this amenity is the primary responsibility of the government of any nation at any given period of time. This is done by putting in place the necessary machinery that will facilitate the availability of this amenities to individuals.

On the other hand, Ajanleko (2001) posited that the enormous public sector efforts have not effectively addressed an expanding housing deficit and escalating construction costs and that such effort must be substantially collaborative with the private sector. Hence, government decided to establish a framework within which such collaboration can effectively address the housing problem.

In light of the above, PMBs were established to facilitate housing delivery in Nigeria through the institution of a private – sector arrangement to supplant the public sector which had proved ineffective over the years in that respect. They were modeled after the building societies in England but their primary purpose was to be NHTF distribution network. At the inception,  the  regulation  and  supervision  of  the  PMBs  devolved  on  the  FMBN.  The supervision/regulation  of  the  sub-sector  was  however  assigned  to  the  CBN  by  Federal Government (FG) budget pronouncement in 1997 after it had witnessed years of serious instability and distress. The CBN Act No. 24 of 1991 and the BOFIA No. 25 of 1991 were amended  to  give  legal  backing  to  the  new  supervisory  arrangement.  In  line  with  the 2

development, the CBN issued revised guidelines for PMBs in 2000 to define mortgage business to include a number of activities such as granting loans and advances to individuals for the purchase or construction of a dwelling house, improvement or extension of an existing dwelling house, and to accept savings and deposits from members of the public. In addition, PMBs offer a wide range of mortgage, financial and other banking services towards the realization of housing and business needs of various customers (corporate and individual). The banks also address various housing needs in line with the National Housing Programme (NHP) anchored on the NHF scheme. Furthermore, PMBs have provision for other commercial loans in respect to building houses, renovation of building, overdraft, among others. The banks also render financial advisory services at no cost to their existing and prospective customers in the area of revenue generation, projects financing, cash flow management, international transactions and raising of capital funds.

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DETERMINANTS OF FINANCIAL PERFORMANCE OF LISTED PRIMARY MORTGAGE BANKS IN NIGERIA