As banks’ appetite for lending rises, association of bank directors insists that credit bureaus must join hands with the Central Bank of Nigeria (CBN) to insulate banks from the orgy of borrowers’ delinquency, reports Festus Akanbi
In a financial system where arm-twisting measures have to be taken by the regulators to compel defaulting bank customers to repay their debts, industry operators say time has come for Nigeria to rally round the services of credit bureau operators. Credit bureaus are firms licensed to establish a credible database of aggregated information of credit status and behaviour about borrowers to enable the nation’s lending industry make the critical move towards informed lending. Notable names among the licensed firms included CR Services Plc (Credit Bureau); XDS Credit Bureau Limited and CRC Credit Bureau Limited.
Although the various bureaus licensed by the CBN have been complementing the services of money deposit banks since 2009, industry operators do not believe they have been doing enough in terms of guaranteeing a ready pool of customers data needed for taking crucial decisions before credit approvals are given to prospective customers. The argument is that in view of the renewed enthusiasm of banks to lend and the rising appetite of the banking public to apply for facility following the resolution of the recent bank crisis, there is need for increased activity of credit bureau operators. For instance, Fitch Ratings in its latest report tagged: “Nigerian Banking Sector: Rapid Credit Growth Returns,” pointed out that rapid credit growth in the country’s banking sector may give rise to weakened asset quality and higher impairment charges if left unchecked.
Ordinarily, credit bureaus collect information on the credit history of borrowers from different sources (mainly lenders and other providers of goods and services on credit) and generally make them available to credit providers who have been approached for credit facilities by such borrowers.
The information on borrowers is contained in a document called a Credit Report.
Thus, credit bureaus sell credit reports primarily to lenders who have been approached for credit facilities, and to other persons who are entitled to access credit reports.
Credit bureaus also assist lenders to appraise the credit worthiness of prospective borrowers by computing and selling to these lenders what is called a Credit Score. Industry watchers explained that the establishment of credit bureaus and the commencement of operations by the pioneers are, to a large extent, responsible for the confidence with which Nigerian banks now embrace consumer lending, a development which they say will propel the nation’s economy forward.
According to them, there is a link between the readiness of banks to give consumer credit and wealth creation in an economy.
A bank chief explained that beyond stimulating consumer lending, the relevance of credit bureaus in the consumer lending chain lies in the fact that, without the exchange of information among lenders facilitated by credit bureaus, the entire consumer credit system will collapse for reasons associated with identity fraud and lack of information on the credit worthiness of prospective borrowers among others.
Bank Directors Rise to the Occasion
According to the Bank Directors Association of Nigeria (BDAN), the ongoing banking sector reform will not be complete until the services of credit bureaus are made to complement the various policies being churned out by the CBN in recent times. Lending his voice to the call for a symbiotic relationship with the CBN on the ongoing banking sector reforms, the President Bank Directors Association of Nigeria Dr. Sonny Kuku said the association believes the services of credit bureaus will complement the on-going banking sector reform measures of the CBN. “We have devoted the 2012 edition of the annual BDAN Stakeholders Forum to examine the linkage between credit bureaus and the banking industry, thus we have chosen the theme of the 2012 edition to be-“How Banks can Leverage on Credit Bureau Services to accelerate Growth”-.
Kuku, who is also the chairman Ecobank Nigeria Plc, further said experiences of other countries show that credit bureaus offer services which if properly harnessed can minimise the occurrence of banking crises and facilitate industry growth. He said Nigerian banks should also tap into the opportunities offered by credit bureaus. According to him, one of the ways to achieve this is to ensure that top decision makers in the industry are fully acquainted with these opportunities, and thus promote the use of credit bureau services.
Also speaking on the 2012 Forum, General-Secretary of the association and a director of Sterling Bank Plc Yemi Idowu said the focus of the banks now is growth having overcome the challenges of the global financial crises, which led to the exit of many banking institutions across the world and in Nigeria.
“In BDAN, we believe that the focus should not be only how to achieve growth, but sustainable growth, and this is where the role of credit bureaus comes in,” he said. He noted further that the major factor responsible for the crisis suffered by the industry in the last four years was the incidence of non-performing loans, people not honouring their loan obligations, “Hence, the association believes that going forward and to achieve sustainable growth, there is the need for industry mechanism to address this problem. With credit bureaus, the problem of non-performing loans will be minimised and nipped in the bud. While the CBN has set up the Asset Management Company of Nigeria (AMCON) to buy non-performing loans of banks, the services of credit bureaus will, however, ensure that non-performing loans do not occur or is reduced to the barest minimum.” Idowu said while AMCON is a curative measure, the credit bureau sub sector is a preventative measure. And since prevention is better than cure, it means that more efforts and resources should be devoted to engaging the services of credit bureaus.
He pointed out that the above is what the council seeks to achieve through the 2012 BDAN Stakeholders Forum. The forum, which is scheduled to hold on November 15, 2012, will feature a keynote address by the CBN Governor Sanusi Lamido Sanusi. It will be chaired by Chairman, OAU Investment Company, former Chairman, Ecobank Nigeria Plc and former Vice President, BDAN, Chief John Odeyemi. The guest speaker, according to the association, is Managing Director/Chief Executive CR Services (credit bureau) Limited, Mr. Taiwo Ayedun. The forum will also feature a review of the topic and decisions reached at the 2011 edition, which focused on “The future of the Banking Industry,” with emphasis on the cashless policy. Based on comments and recommendations by participants at the 2011 BDAN Forum on how to successfully implement the cashless policy, the association issued a statement where it advocated among other things, regular assessment and review of the policy. According to BDAN Vice-President and a Director of UBA Plc, Mrs. Foluke Abdulrazaq, it would have been 10 months since the commencement of the cashless policy by November. She said there have been some changes to the policy, which is in line with our recommendations. Mrs. Abdulrazaq pointed out that since the council advocated for regular assessment and review of the policy, the forum will be used to achieve this.
BDAN as the umbrella body of bank directors was established in 1997 to serve as a platform for improving the knowledge and the competence of bank directors, thereby promoting quality practice within the banking industry in Nigeria.
The association also contributes to the development of the banking industry through recommendations and comments on policy and topical issues in the industry. As part of measures to achieve its dreams, the association organises an annual stakeholders forum which brings together executive and non-executive directors of banks, officials of other financial institutions, regulatory authorities, professional bodies and executives of other leading companies in Nigeria. Among other things, the forum provides opportunity for banking professionals to network and also share thoughts on the theme of the forum.