Nigeria: Limiting Credit Risk Via Credit Bureaus “There was a marked improvement in banks’ asset quality during 2011 following the sale of problem loans to the Asset Management Corporation of Nigeria (AMCON). However, rapid underlying credit growth of between 30 and 66 per cent was evident in most of the Fitch-rated banks in 2011, which the agency considers will be a negative credit driver if it continues,” Fitch noted. AMCON’s purchase of non-performing loans (NPLs), which almost led to the collapse of the financial system, had helped to restore the health of most banks. The banking sector recapitalisation exercise, which was concluded last year, also led to mergers and acquisitions in the industry, a move which many analysts believed, stabilised the industry. Although the warning by the ratings agency has since been dismissed by the CBN Governor, Mallam Lamido Sanusi, it however brings to the fore, the need for financial institutions to properly engage the services of credit bureaus so as to ensure that gains from the reforms in the industry are not eroded. Credit bureaus play an integral role in promoting financial inclusion in such a way that clients with a strong repayment history benefit from faster services and preferential treatment from institutions they are dealing with. Experts also maintain that banks and other financial service providers would profit from reduced transaction costs and improved portfolio quality if they engage the credit bureaux in their operations. Credit Bureaus also improve transparency in financial transactions as they promote confidence and greater access to services and banking products. They can be said to be a ‘library’ of credit information, providing a centralised database of credit behaviour of individuals and institutions. That is, they show how well banks’ customers’ manage their credit commitments. The roles played by credit bureaus are important as they usually provide vital information to credit providers to prevent over-indebtedness of consumers and the granting of reckless credit. Their existence makes it easier for financial institutions to make informed and responsible lending decisions, in a timely manner. Credit Growth THISDAY findings revealed that credit to the private sector increased by N1.346 trillion in the first six months of 2012 to N14.694 trillion as at June. Data obtained from the CBN website represented an improvement by 10.08 per cent, over the N13.348 trillion reported in January. However, credit bureaux operators contend that the growth and quality in banks’ risk assets should be supported through the use of credit bureaux. Managing Director/Chief Executive Officer, CreditRegistry Services Limited, Mr. Taiwo Ayedun, urged banks to always engage the services of credit bureaux so as to sustain the current level of non-performing loans in the industry. He added: “We have witnessed steady growth in usage by banks and other financial institutions since the beginning of this year. Collectively, under the umbrella of the Credit Bureau Association of Nigeria (CBAN), all three licensed credit bureaus are working with the CBN towards reviewing the current credit bureau guidelines. “Earlier in the year, CBAN also made a presentation to the Bankers’ Committee in which we shared the untapped growth opportunities for banks through credit bureaux. In spite of the successful introduction of AMCON, most banks continue to focus on corporate lending thereby leaving the consumer credit space largely untapped. We are glad that some of our recommendations are already receiving the attention of the banks and regulators.” Managing Director/Chief Executive Officer, Keystone Bank Limited, Mr. Oti Ikomi, also confirmed the competence of credit data institutions. “There is a credit risk management system check from the CBN which is very important and for that, the intending obligor or borrower must not have a negative rating mostly on the corporate side. Also, for individuals, through the credit bureau, we do checks on them,” Ikomi added. His counterpart at Enterprise Bank Limited, Mr. Ahmed Kuru, also pointed out that “the credit bureaux as you know have been very effective when it comes to the issue of credit.” But Kuru identified the absence of a reliable national identity as a challenge in gathering efficient credit data in the country. Economic Role Senior Vice President, Dun and Bradstreet, Dominican Republic, Mr. Miguel Llenas, in a report, pointed out that just as the credit bureau industry in Latin America facilitated development in countries in the region, with the required patronage, the sub-sector would also stimulate financial inclusion in Nigeria. Lienas argued that activities of credit bureaux had changed the face of financial industries in countries in Latin America. “I believe that credit bureaus are one of the most important powerful economic tools in any economy. It is an essential tool to make people part of the financial sector. The relationship between banks and credit bureaus in the Dominican Republic helped banks in that country to withstand the shock of the global economic crisis. “While banks were attacked in the United States of America (USA), we saw the danger ahead and advised banks in the Dominican Republic,” he said. Llenas pointed out that there was need for a high level of awareness and enlightenment on the activities of credit bureaus in Nigeria. However, Ayedun said that “some banks have tasted and seen the benefits of using credit bureau information and have now aligned their policies and consumer credit strategies to reflect this development. For instance, in 2011, our subscribers recovered close to N300 billion in NPLs, it is therefore not surprising that some of these banks have now included use of credit bureau information as an integral part of their consumer credit and risk management strategy in 2012.” He also disclosed that although commercial banks are currently dominant in utilising credit bureau data, other financial institutions are slowly embracing the credit bureaux culture as well. “The benefits of credit bureaus to the success of any lending business cannot be overemphasised. Credit bureaus provide lenders with information that is critical to evaluating the creditworthiness of data subjects. “This information enables banks make effective lending decisions, increases their ability to proactively measure portfolio risk and radically improves their debt collection efforts. Credit bureaus also promote social accountability among borrowers, thereby leading to more sustainable and profitable banks and ultimately a healthier financial system,” he added. According to him, risk associated with lending would be minimised if banks and other institutions that grants credit subscribe to the services of credit bureaus. Ayedun added: “There is a tremendous opportunity for the banks. The country and the banking sector have tremendous opportunity for growth. Every successful economy has to create credit. There are lots of growth prospects.” Group Managing Director and Chief Executive Officer, First Bank Nigeria Plc, Mr. Bisi Onasanya, recently also stressed the need for a national identity system, saying that the absence of consumer lending facilities was greatly affecting consumer credit growth in Nigeria. “We need to improve on the way credit bureaus operate today to make credit much more available to the middle income earners and others in the economy,” he added. |