The Need for Local Currency Fixed Income Markets.2008.11.25

8/7/2019 The Need for Local Currency Fixed Income Markets.2008.11.25

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Mortgage Finance andlocal currency bond

markets in Nigeria.

Chidi Oti-Obihara

NEX RUBICA advisory


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Nigerias Mortgage market

Nigeria is the most populous country in sub-Saharan Africa - circa 140 million and growing ata rate of about 2.83% per annum.

There are few reliable housing statistics available (financial system strategy draft report2020). Some level of research has been undertaken by different bodies in an effort toestimate current housing stock and potential deficit.

It is estimated that about 64% of the population currently resides in the rural areas wheresocial amenities and infrastructure are inadequate. Exacerbating continued rural urbanmigration.

The US Nigeria Development Institute puts available housing stock in Urban Nigeria at10.7m units, out of which it is estimated that less than 5% is in the formal mortgagesystem.

The World Bank estimates that the current national housing deficit ranges between 12 16million housing units. Similarly, a study by the Federal Mortgage Bank of Nigeria, whichis the apex mortgage institution in the country, indicates that about N12 trillion will berequired to meet the shortfall in Nigerias housing needs, which is currently put at about12 million units.

Internal research by World bank project team estimates the annual housing need of the

country at between 500,000 1,000,000 units when the existing shortfall is met, at therate of urbanization. All these estimates point to a very large housing supply deficit inboth the rural and urban areas that need to be addressed in a structured manner toincrease existing housing stock.

Nigerias growing population coupled with the increasing rural urban drift will further serve toacerbate the size of the potential housing deficit over the short to medium term andaddressing the housing need of Nigeria will require huge financial resources ranging inthe tens of trillion naira.

Therefore, promoting the development of a viable housing Finance Market is the answer to

not only making housing accessible to a greater percentage of the population, but alsothe development of the Nigerian economy. The challenge is how to mobilize/release thecritical amount of funds required to jumpstart start the process.


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The bank sector and its fundingsources

, ( )A cco rd in g to th e C e n tral B an k o f N ig e ria th e total am ou n t of in ve stib le fu n d s a va ilab le to th e ex istin g 8 1 e ig h ty on e. , %p rim a ry m ortg ag e in stitu tio ns w as N 3 6 7 b illion an d o n ly N 2 2 b illion or 60 of th is am ou n t stan d s a

.re aso n ab le c h an ce of b e in g ch an n e le d for m ortg ag e loa n s orig in ation


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A simply S.W.O.T analysis


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Annualised 90 day GBP Libor2002- 2005


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Monthly 90 day GBP Libor 2002-2005


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Daily 90 day GBP Libor 2002-2005


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Annual 90 day NGN Nibor 2002-2005


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Monthly 90 day NGN Nibor2002- 2005


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Daily 90 day NGN Nibor 2002-2005


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Risks and returns

ly average monthly average daily average


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Risks and returns

ly average monthly average daily average


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Hence we have an importantdevelopment challenge for Nigerian

MarketsNigeria Interbank Offer Rate

( )NIBOR Yield Curve Nov 2008:Source Nigerian Money Markets Association website

Nigerian Banks spreads remain high

-Nigeria Interbank T Bills True YieldFixing

( )NITTY Yield Curve Nov 2008:Source Nigerian Money Markets Association website


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Trends

Security Description mid rate Mat. Date

3rd FGN BOND 2009 SERIES 11 . %6 8164 28-Jul-09

3rd FGN BOND 2009 SERIES 12 . %7 0606 25-Aug-09

4TH FGN BOND 2010 SERIES 1 . %8 0049 26-Jan-10

4TH FGN BOND2010 SERIES 4 . %7 9216 27-Apr-10

4TH FGN BOND2010 SERIES 7 . %7 9338 27-Jul-10

4TH FGN BOND2010 SERIES 12 . %7 2990 26-Oct-10

3rd FGN BOND 2011 SERIES 13 . %8 3543 29-Sep-11

4TH FGN BOND 2012 SERIES 2 . %9 2437 23-Feb-12

4TH FGN BOND2012 SERIES 5 . %9 2971 25-May-12

4TH FGN BOND2012 SERIES 10 . %9 1766 31-Aug-12

4TH FGN BOND2014 SERIES 3 . %9 4540 30-Mar-14

4TH FGN BOND2014 SERIES 6 . %9 5559 29-Jun-14

4TH FGN BOND2014 SERIES 11 . %9 4660 28-Sep-144TH FGN BOND2010 SERIES 8 . %9 6327 27-Jul-17

4TH FGN BOND2017 SERIES 9 . %10 3637 31-Aug-17


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TrendsSeries Mid rate Maturity3rd FGN BOND 2009 SERIES 11 . %7 540 28-Jul-09

3rd FGN BOND 2009 SERIES 12 . %7 461 25-Aug-094TH FGN BOND 2010 SERIES 1 . %8 548 26-Jan-104TH FGN BOND2010 SERIES 4 . %8 476 27-Apr-104TH FGN BOND2010 SERIES 7 . %8 907 27-Jul-104TH FGN BOND2010 SERIES 12 . %8 712 26-Oct-104TH FGN BOND2010 SERIES 13 . %9 575 30-Nov-104TH FGN BOND2010 SERIES 14 . %10 298 14-Dec-10

5TH FGN BOND2018 SERIES 3 . %10 214 25-Jul-113rd FGN BOND 2011 SERIES 13 . %8 652 29-Sep-114TH FGN BOND 2012 SERIES 2 . %10 192 23-Feb-124TH FGN BOND2012 SERIES 5 . %10 628 25-May-124TH FGN BOND2012 SERIES 10 . %10 593 31-Aug-125TH FGN BOND2013 SERIES 1 . %11 206 25-Jan-134TH FGN BOND2014 SERIES 3 . %9 837 30-Mar-144TH FGN BOND2014 SERIES 6 . %10 335 29-Jun-144TH FGN BOND2014 SERIES 11

. %9 552 28-Sep-14

4TH FGN BOND2010 SERIES 8 . %10 511 27-Jul-174TH FGN BOND2017 SERIES 9 . %12 049 31-Aug-175TH FGN BOND2018 SERIES 2 . %12 017 30-May-18


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Trends


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Targeted Conclusions the size of the opportunity ?

The Need for Local Currency Fixed Income Markets.2008.11.25

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