NMB Bank to start issuing housing loans

NMB Bank is set to venture into mortgage financing as it seeks new avenues to raise income following a cap on bank charges.

The move comes at a time banks are projecting a $73 million decline in income after government scrapped bank charges on deposits of $800 and below and decreed that any term deposit of $1 000 and above held over a period of at least 30 days and above should attract an interest of at least 4% per annum.

NMB Holding chief executive officer James Mushore told Standardbusiness last week the bank was now on the hunt for lines of credit to be used in mortgage financing as that money was not locally available due to the short term nature of deposits.

NMB Holdings is the parent company of NMB Bank.

"We have to match assets and liabilities. If we get lines of credit for 10 years, we go for a 10-year mortgage facility," he said.

Mushore said mortgage financing was safer in that the bank would lend against a secure asset unlike in consumption expenditure whereby clients borrow to go on holidays.

NMB has been hit by a huge non-performing loan book. In the half year ended June 30, non-performing loans were at 22%.

Mushore said the group was confident the quantum of non-performing loans would have been reduced by the end of the year.

"We try to nurse clients in difficulties and restructure their facilities. The last thing a banks needs is to foreclose," he said.

The bank used to focus on high net worth clients but will now spread its wings to the lower ends of the market and small to medium sized enterprises.

To tap into the SMEs, Mushore said the bank was set to raise $50 million through a bond to finance the sector.

The bond will have prescribed and liquid asset status. It will be subscribed by local investors such as pension funds among others.

Banks are constrained due to liquidity challenges following the huge withdrawals before the July 31 harmonised elections.

It is estimated that at least $1 billion could have left the sector after the elections.

Mushore said the group was however able to raise lines of credit to keep the bank liquid. He said the bank has also been able to keep its liquid ratio above the mandatory 30% ensuring that the institution does not default. He said the bank was mindful that the ratio is not too high as that would eat into its profits.

He said liquidity challenges in the market have meant that margins were squeezed and the bank was supposed to push volumes.

"We are getting squeezed by liquidity and the MOU [Memorandum of Understanding]," Mushore said.

Mushore said the MOU was impacting on all banks and the industry was the only one with price controls.

"Banks are competing with one another for customers. If I charge five times more than competitor, I will lose. Let the market decide the price," he said.

He said the group also has plans to venture into leasing business.

It used to run a leasing business with one of its shareholders, African Century but later sold the stake to raise more capital to meet the minimum equity thresholds announced by the central bank in August 2012.

The group had a non-compete clause with African Century which expired last month and Mushore said it will seek licensing from the central bank to resume leasing business.